TMI Blog2016 (2) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... ssuing bank when cardholder uses debit card to pay in foreign exchange abroad - Held that: - the adjudicating authority demanded service tax under, “operation of Bank a/c” Section 65(12)(ix), under Banking and Other Financial Services. For the identical issue of “mark up”, amount for credit card and debit card, the department cannot demand service tax one under “credit card services - Section 65(12)(ii) and the other under “Operation of Bank a/c”, Section 65(12)(ix). - the mark up is essentially to meet the foreign exchange fluctuations for arriving the cost of the goods/services purchased by the cardholder. Since we have already held in respect of credit card services, the markup charges is not liable to service tax under credit card services - Section 65(12)(ii), the same is applicable to the mark up charges accruing to the issuing bank in respect of debit card charges. The demand of ₹ 24,51,538/- confirmed by the adjudicating authority in the impugned order is liable to be set aside. As we have already held that service tax is not payable on mark up charges accruing on both credit card and debit card, on merits, we do not go into the other issues, viz. limitation, expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is a transaction of overseas since the cardholder transacts involving payment of foreign exchange. He drew our attention to bank agreement with VISA at Pages 156 and 155 of the paper book. He submits that 3% mark up is in relation to exchange rate. He submits that mark up is part of cost of the goods/services purchased in foreign currency and not for providing any service and submits that they have already discharged service tax credit including interest. He mainly relied on Tribunal s LB decision in the case of Standard Chartered Bank and Others v. CST - 2015-TIOL-1713-CESTAT-LB = 2015 (40) S.T.R. 104 (Tribunal-LB). He submits that the Larger Bench has discussed genre of Credit Card Services under Banking and Other Financial Services (BOFS) prior to 1-5-2006. The relied Paragraphs 3, 4 and 45, 46. 3.1 He further submits that even if mark up is considered as service, it is nothing but purchase and sale of foreign exchange including money changing which is specifically brought under service tax w.e.f. 16-5-2008. Their case is prior to 16-5-2008. He drew our attention to Board s circular dated 12-3-2007, 23-8-2007 and 29-2-2008 at Pages 50 to 52 of the compilation. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an individual and not to a commercial concern. He submits that notwithstanding above plea, for the period 15-3-2005 to 30-4-2006, the appellant s demand would be considered as exports. The services are provided and used other than in relation to commerce or industry since cardholders mainly uses his card for personal transactions. Therefore services are exported under Rule 3 of Export Rules. For the earlier period, by virtue of clarification and decision, it is not taxable. 3.4 Ld. counsel submits that out of the total demand, demand to the extent of Rs. of ₹ 5,10,77,241/- is hit by limitation where there was no suppression of any information with intent to evade payment of service tax. He submits that the department has sought clarification. He submits a copy of letter C. No. IV/16/630/2003, dated 2-12-2003 issued by the Superintendent of Service Tax, seeking clarification as to whether any service tax is paid while converting foreign exchange sales abroad to Indian currency and commission charged, etc. He drew our attention to their reply letter dated 4-12-2003 at Page 185 of the paper book wherein they have given a detailed information in respect of credit card busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without the credit card all other activities including conversion of foreign exchange rates cannot be performed and the main activity is credit card service. It is not in relation to credit card used by cardholder. He submits that w.e.f. 1-5-2006 credit card service is chargeable under BOFS under clause (ii) of the services. He submits that levy on the credit card services is charged annually. Therefore nature of transaction is indirectly relatable to credit card service activity. Any mark up is foreign exchange consideration or integral part of the credit card service during the relevant period. 5. Ld. AR countered the arguments of the counsel on the reliance of Tribunal s LB decision in the case of Standard Chartered Bank and Others (supra) and submits that said case law is not applicable to this case. He submits that issue before the Larger Bench was not the transaction between the cardholder and the bank whereas in the case on hand, the issue is on mark up transaction and other charges between issuing bank and the receiving bank. He drew our attention to the LB decision in the case of Standard Chartered Bank and Others (supra) and referred to Paras 10(C)(iii) and 11 at Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterated that 3% mark-up fee is only towards cost of goods or services purely on account of foreign exchange rates and it is not towards service rendered to any cardholder and also submits that no SCN was issued to any other bank. He again reiterated the LB decision in Standard Chartered Bank v. CST (supra) wherein the LB has categorically discussed the Board s circular. The LB discussed post-1-5-2006-card services wherein a new service was carved out under sub-clause (iii) of Section 65(33a) which specifically covers all transactions by any person including an issuing bank and an acquiring bank, to any other person in relation to settlement of any amount transacted through such card. (Page 30). He also relied Para 19 of the citation wherein the as per the definition of credit card services , under BOFS is discussed. He submits that credit card services prior to 1-5-2006 is not covered under the definition of BOFS services. He submits that after 1-5-2006, they started regularly paying the charges. Regarding Revenue s contention that services were rendered outside India, he referred to the allegations made in Para 16 of the SCN (Ref. Pages 170 to 172 of the appeal memo) and cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on the following categories of income linked to credit card business : (a) revenue generated from interchange - the differential amount generated by the appellant for funding the receivables. (b) Revenue generated in the name of mark-up amount over and above the official conversion rate when credit card is used abroad by the cardholder. .... .... ..... 10. We have heard both the sides and examined the connected appeal papers. The point for decision is tax liability of income accruing to appellant as mark-up when card is used for foreign exchange payment. Credit Card Services is one of the services taxed under Banking and Financial Services introduced with effect from 16-7-2001. The term Credit Card Services was not defined during the impugned period. A new tax entry was introduced in 2006 under Section 65(12) as Credit Card Services with much wider scope as defined under Section 65(33a). The period relevant for the present appeal is prior to this new entry. The relevant statutory provisions are as below : Section 65(10) of Finance Act, 1994 : Banking and Financial Services means the following services provided by a banking company or a finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The service in respect of such transaction is rendered, received and consumed outside India. The card issuing appellant and card holder having normal residence in India is of no consequence for tax liability on service rendered and consumed outside India. The Tribunal s decision in Cox Kings India Ltd. (supra) is applicable to the present case. The essence of taxability of service is that it should be taxed in the jurisdiction of its consumption. Here, the service, namely facility of use of card for payment, is rendered outside India and duly consumed by the recipient cardholder outside India. We find service tax liability on such service is not sustainable for want of jurisdiction. Even if it is considered, conceding the plea of revenue that the card is issued in India and the service availed abroad is in continuation of such card usage, it is clear that the identified service element has been wholly rendered and consumed abroad. As Hon ble Supreme Court in the case of Ishikawa-Ima-Harima Heavy Industries Ltd. - 2007 (6) S.T.R. 3 (S.C.) held that in respect of offshore services, there should be sufficient nexus between the rendition of services and territorial limits of India. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances which is inapplicable to the present case as the ambit and scope of the Finance Act is on a different footing. With regard to the Larger Bench s decision, the said case dealt with reimbursement in the context of money realized by the service provider. This judgment is also inapplicable to the facts and circumstances of the case. 10. We further hold that the mark up on foreign currency transaction in case of a credit card is part of the cost of goods/services purchased by the cardholder and is not a consideration for extending credit facilities. Further, the Hon ble Bombay High Court, in the case of Indian National Ship Owners Association v. Union of India, reported in 2009 (14) S.T.R. 289 (Bom.) has held that an introduction of a new entry and inclusion of certain services under that entry presupposes that there was no earlier entry covering such services. The Larger Bench decision in the case of Standard Chartered Bank and others v. CST - 2015-TIOL-1713-CESTAT-LB = 2015 (40) S.T.R. 104 (Tri.-LB) which has discussed the genre of credit card services also holds good and is squarely applicable to the facts of the present case. 11. The above rulings on this issue m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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