TMI Blog2020 (6) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... es with CBEC, the issue involved in those correspondences were in relation to Central Depository Services and not in relation to services of providing for provision and transfer of information and data processing . - Demand confirmed invoking the extended period of limitation. The benefit of cum tax value as per section 67(2) of the Finance Act, 1994 should be extended to the appellant s while determining the tax payable. The Commissioner has erred in not extending the benefit of tax already paid by the appellant in respect of certain services sought to be taxed again in the present proceedings. Hence the matter for quantification of demands on the above lines need to be remanded back to the original adjudicating authority for denovo consideration. Demand of Interest - HELD THAT:- Since the demand of tax made is upheld, the demand of interest made under Section 75 of the Finance Act 1994, is also upheld. Penalties - HELD THAT:- The Penalties imposed under Section 75A, 77 78 of Finance Act, 1994 is justified but needs to be redetermined in light of re-quantification of demand in de-novo proceedings. Appeal allowed by way of remand. - Service Tax Appeal No. 87451 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I impose penalty of ₹ 5000/- (Rupees Five Thousand only) on the Noticee for each failure to file proper periodical returns as prescribed under Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994 on the due dates and for failure to furnish the list of all accounts maintained by them in relation to Service Tax as required under Rule 5(2) of the Service Tax, 1994, respectively under Section 77 of the Act. 5.07 I, refrain from imposing penalty under Section 76 of the Act, as I have imposed penalty under Section 78 of the Act at 5.05 above. 2.1 Intelligence gathered by the officers of Directorate General Of Central Excise Mumbai Zonal Unit to effect that Appellants were not discharging service tax on operational income received on account of transaction fees, custodial fees etc, by wrongly claiming exemption from service tax as per Board Circular No.B.II/1/200/TRU dated 09.07.2001. These amounts received by the Appellants from Depository Participants appeared to be liable to taxation under the category of Banking and Financial Services . 2.2 Acting on intelligence investigation were initiated and relevant details in respect of Operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Banking and Other Financial Services as defined under Section 65(12)(vii) and Section 65 (105)(zm) of the Act; ii. the Service Tax amounting to ₹ 52,36,20,950/- (Rupees Fifty Two Crores Thirty Six Lakhs Twenty Thousand Nine Hundred and Fifty only) on the taxable amount of ₹ 454,34,55,334/-, as detailed in Annexure A, should not be demanded and recovered from them under proviso to section 73(1) read with section 66 and section 68 of the said Act under Banking Financial Services category; iii. the interest on the said ST demanded and payable as mentioned above should not be demanded and recovered from them under Section 75 of the Act; iv. Penalty should not be imposed upon them under the provisions of Section 75A of the Finance Act, 1994 for failure to make an application for registration in form ST-1 within the prescribed time as required under Section 69 of the Act read with Rule 4 of Service Tax Rules, 1994; v. Penalty should not be imposed upon them under the provisions of Section 76 of the Finance Act, 1994 for failure to pay service tax in accordance with the provisions of Section 68 of the Act read with Rule 6 of the Service Tax Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dhey Shyam [2018-TIOL-300-HC-ALL] The entire activity relating to the issue of PAN is a sovereign function and TIN facilitation Centres are only agents who have discharged the tax liability. As per Tribunal decision in case of UTI Technology Services Ltd [2012-TIOL-73-CESTAT-Mum], such services rendered in relation to Sovereign function cannot be taxed under the category of Business Auxiliary Services. From perusal of the correspondences with the department prior to registration on 17.11.2003/ 19.04.2004 CBEC Circular F No B-II/2001 TRU dated 09.07.2001, stating that service tax will not be leviable on NSDL or CDSL fee paid to the depositories and received from the customers on actual basis, clearly show that department was fully aware of all facts and hence the demand made by invoking extended period of limitation as per proviso to Section 73 (1) is not sustainable as held in following decisions: o Anand Nishikawa [2005 (188) ELT 149 (SC)] o Kapoor Lampshade [2016 (337) ELT 14 (P H)] o Adani Gas Ltd [2019-VIL-239-CESTAT-Ahm] o Macleaods Pharmaceuticals [2013 (296) ELT 379 (T)] o Accurate Chemical Industries [2014 (300) ELT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leges that there services will fall under ambit of 65(12)(vii) which is provision and transfer of information and data processing , on the basis of Master Circular No 96/7/2007-ST dated 23.08.2007. This is contrary to circular F No B-II/2001-TRU dated 09.07.2001 and Circular No 50/11/2002-ST dated 18.12.2002, as per which their services were held to be depository services. As per CBEC Letter No 137/57/2006-CX.4 dated 18.05.2007 it has been clarified in context of stock exchange services that processing, clearing and settlement services provided by NSE/ BSE/ MCX/ NCDEX/ NSCCL/ BIOSL/ CCIL do not fall under any of the applicable taxable services such as online information and database access or retrieval, business auxiliary service or club and association services. Provision and transfer of information and data processing was considered in the context of stock exchange services and it was clarified that these individual services cannot be categorized as stock exchange services. By the same logic there service services cannot be categorized as such. Provision and transfer of information should be an independent activity and not be an integral part of some other ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om bald assertion there is no substance to show the fact of wilful suppression. Hon ble Supreme Court has in the case of Uniworth Textiles Ltd [2013 (288) ELT 161 (SC)] held that the burden to prove suppression etc is on the department. They have not collected the service tax from their DP s under bonafide belief that they were not liable to pay any service tax. Counsel submitted additional documents as directed by the bench, at time of hearing, in form of ST-3 returns for the period 2004-05 to 2008-09. 3.3 Arguing for the revenue learned Authorized Representative while reiterating the findings recorded in the impugned order submitted that- The issue involved in the matter is with regards to the services of provision and transfer of information and data processing and not in respect of the custodial depository services as argued by the appellant counsel; The issue is covered by the decision of the tribunal in case of Bank of Baroda [2016 (43) STR 141 (T-Mum)]. In similar facts of the case it has been held that the services provided are classifiable under the taxable category of Banking and Other Financial Services as provision and transfer of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults; operation of bank accounts. (b) foreign exchange broking provided by a foreign exchange broker other than those covered under sub-clause (a). 4.4 Appellants do not dispute that they are a body corporate and are covered by the phrase other body corporate used in the definition of Banking and Other Financial Services. 4.5 As per para 4.4 of impugned order undisputedly appellants provide following services to the Depository Participants:- De-materialization i.e. converting physical certificates to electronic form; Re-materialization i.e. converting securities in de-mat form to physical certificates; Facilitating repurchase/ redemption of units of mutual funds or debt instruments; Electronic settlement of trades in stock exchanges connected to NSDL Pledging/ hypothecation of de-materialized securities; Electronic credit of securities allotted in public issues, rights issue; Receipt of non-cash corporate benefits such as bonus, in electronic form; Freezing of de-mat accounts, so that the debits from the account are not permitted; Nomination fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various services to investors and other participants in the capital market like, clearing members, stock exchanges, banks and issuers of securities. These include basic facilities like account maintenance, dematerialisation, rematerialisation, settlement of trades through market transfers, off market transfers interdepository transfers, distribution of non-cash corporate actions and nomination/ transmission. The depository system, which links the issuers, depository participants (DPs), NSDL and Clearing Corporation/ Clearing house of stock exchanges, facilitates holding of securities in dematerialised form and effects transfers by means of account transfers. This system which facilitates scripless trading offers various direct and indirect services to the market participants. Further in FAQ available on their web-site following have been stated: How can I avail the services of depository? A depository interfaces with the investors through its agents called Depository Participants (DPs). If an investor wants to avail the services offered by the depository, the investor has to open an account with a DP. This is similar to opening an account with any branch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ixed and are based on the usage of NSDL system. Complete details of NSDL charges as are payable by the DPs are available on NSDL website (www.nsdl.co.in). The DP charges its client for the services offered. The charges that the DP will be charging you for various services are mentioned in the Schedule of Charges which forms a part of the account opening agreement. You may keep a copy of this for your future reference. You can get the details of the charges from the DPs. You can also get a comparative list of DP charges from NSDL s office or from the NSDL website. Your DP may revise charges by giving you 30 days notice in advance. What precaution does NSDL take to protect the data in its depository system? The data carries a high importance in the NSDL depository system. NSDL has taken necessary steps to protect the transmission and storage of data. The data is protected from unauthorized access, manipulation and destruction. The following backup practices are adopted to protect the data: o Local Backup o Remote Backup o Disaster Recovery Site In addition to this, every DP is required to take daily backup, at the end of each day of operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans the hardware setup of the Issuer or its Registrar and Transfer Agent relating to Depository operations. This shall consist of servers, workstations, router and the communication line linking them to the Depository. Further these Business Rules lay down: 4.1 Depository System 4.1.1 The User shall carry out transactions relating to the Depository only through the approved User Hardware System located at approved locations of the office of the user. No other workstation, computer system or hardware may be connected to the User Hardware System without the prior approval of the Depository. 4.1.2 Each User shall have a unique identification number provided by the Depository called BP ID which shall be used to identify that User by the Depository and by Other Users. 4.1.3 A User shall have a non-exclusive permission to use the DPM as provided by the Depository in the ordinary course of its business as such User. 4.1.4 The permission to use the DPM shall be subject to the payment by the User of such charges as may be specified by the Depository. 4.1.5 .. 4.1.6 A Participant shall not, by itself or through and other person(s) on its behalf, pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally for transfer of holdings held in dematerialized form to other eligible SGL entity for transfer to an SGL account with other eligible entity, and shall inform the SGL entity name and SGL account number of the other eligible entity to NSDL in such form and manner as may be prescribed. 11.6.9 In case the request was for transfer to an SGL account with other eligible entity, the Depository shall confirm the acceptance of RRF-GS electronically to the Participant, after obtaining approval from RBI. 4.11 All what has been stated in para 4.8, 4.9 4.10, above is stated in the Show Cause Notice. Show Cause Notice also refers to Statements of Shri Tejas Kulin Desai Senior Vice President of Appellant and Shri Hiten Prataprai Mehta, Vice President of Appellant wherein they were confronted with the above and they have stated as follows: Statement of Shri Tejas Kulin Desai: Statement of Shri Hiten Prataprai Mehta: 4.12 All the above business rules of the appellants and the Statements of their Senior Vice President and Vice President show that are providing for provision and transfer of information and data processing and these are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial transactions. The services provided by SWIFT involves providing of information related to financial transactions viz. transfer of funds; transfer of information contained in the said message after processing the data contained therein. Data processing in any computer is a process that converts data into information. The data contained in the said financial message when presented for processing is raw data which when processed become useful information for the customers viz. banks, financial institutions, etc., who then use the said processed information to debit and credit the customers accounts accordingly, i.e., funds settlement between the banks. The computer network operating systems, i.e., SWIFT network, installed at BOB, SWIFT Network at Belgium and at the recipient s end, for whom the message is intended, manipulate raw data into information and likewise information systems typically take raw data as input to produce information as output. In the context of data processing, data are defined as numbers or characters that represent measurements from the real world. Measured information is then algorithmically derived and/or logically deduced and/or statistically calculate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended users related to the same financial transaction. 7.2 From the above detailed process involved, it is clear that the activities appear to amount to provision and transfer of information and data processing in relation to banking and other financial services, as defined under the Act and clearly covered under the entry provided in sub-clause (a)(vii) of Section 65(12), i.e., provision and transfer of information and data processing . 7.3 As regards the contention of the appellant that SWIFT does not fall under the category of banking and other financial institutions as SWIFT is not engaged in the business of banking and other financial services, we find that if any person provides the service which is covered under the four corners of definition of Banking and Other Financial Services , it shall be taxable. Moreover there is no dispute that the SWIFT is a body corporate and covered under the definition of Banking and Other Financial Services . As per the plain reading of the definition, apart from banking and other financial institutions , the category of a person such as body corporate and any other person are also covered. Therefore, it is not signifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of demand on two counts, stated as follows: ➢ The amount collected by them from the DP s was the gross amount collected and if the tax was to be demanded then this amount should be treated as inclusive of Service Tax payable. Thus treating this amount as cum tax amount the tax payable should be computed as per Section 67(2) of the Finance Act, 1994. ➢ They had paid a certain amount of taxes during the period of dispute. The amounts paid by them towards the tax was also reflected in their ST-3 returns. This tax paid should have been taken into account while determining the tax payable by them. 4.16 Commissioner has dealt the two issues raised by the appellants in para 4.19 and 4.20 of his order. These para s are reproduced below: 4.19 The noticee have claimed that there is a computation error in the SCN and excess calculation of ₹ 20.03 crores towards alleged liability of Service Tax has been made in the SCN. I have gone through the discrepancies pointed out by the noticee in the Annexure (computation statement) attached to the SCN, the computation statement as provided by the noticee and the documents available on record and find that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) .. (4) .. It is not the argument of the noticee that the consideration collected by them is inclusive of service tax nor that is a fact. Provisions of Section 67(2) of the Finance Act, 1994 are not applicable to them. 4.17 We are in agreement with the submissions made by the appellant that benefit of cum tax value and the tax paid by them during the relevant period should have been taken into account while determining the tax payable by them. Larger Bench of Tribunal has in case of Shri Chakra Tyres [1999 (108) ELT 361 (T-LB)] held as follows: 9.1 We have carefully considered the pleas advanced from both sides, assessable value is required to be determined in terms of Section 4 of the Act. Sub-section 4(4)(d)(ii) envisages deduction of aggregate effective duty payable on the goods under the Act, and all other Acts, if the wholesale price at which goods are sold includes all such excise duties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeded on the basis that the amount realised by the respondent from the sale of scrap has to be regarded as a normal wholesale price and in determining the value on which excise duty is payable the element of excise duty which must be regarded as having been incorporated in the sale price, must be excluded. There is nothing to show that once the demand was raised by the Department, the respondent sought to recover the same from the purchaser of scrap. The facts indicate that after the sale transaction was completed, the purchaser was under no obligation to pay any extra amount to the seller, namely, the respondent. In such a transaction, it is the seller who takes on the obligation of paying all taxes on the goods sold and in such a case the said taxes on the goods sold are to be deducted under Section 4(4)(d)(ii) and this is precisely what has been directed by the Tribunal. There is also nothing to show that the sale price was not cum-duty. 4.18 Hence in our view the benefit of cum tax value as per section 67(2) of the Finance Act, 1994 should be extended to the appellant s while determining the tax payable. In our view the Commissioner has erred in not extending the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs injury by and the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. In the case of a proceeding under Section 271(1)(a), however, it seems that the intention of the legislature is to emphasise the fact of loss of Revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection the terms in which the penalty falls to be measured is significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing in Section 271(1)(a) which requires that mensrea must be proved before penalty can be levied under that provision. We are supported by the statement in Corpus Juris Secundum Volume 85, page 580, Paragraph 1023 : A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws. Since there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Rajasthan Spinning and Weaving Mills [2009 (238) ELT 3 (SC)]. 4.22 Thus we summarize our findings in the appeal as follows: ➢ the services provided by the appellant to depository participants are aptly of provision and transfer of information and data processing , classifiable under (vii) of Banking and Financial Services as defined under Section 65(12) of Finance Act, 1994; ➢ Extended period of limitation as per proviso to Section 73(1) of Finance Act, 1994, for demanding the service tax is invocable. ➢ benefit of cum tax value as per sub-section (2) of Section 67 of Finance Act, 1994 is admissible to the appellants and so is also the benefit of the tax already paid as per the ST3 returns filed by them, hence matter needs to be remanded back to adjudicating authority for re-quantification of demand. ➢ Demand of interest under Section 75 of Finance Act, 1994 is justified. ➢ Penalties imposed under Section 75A, 77 78 of Finance Act, 1994 is justified but needs to be redetermined in light of re-quantification of demand in de-novo proceedings. 5.1 In light of the discussions as above we uphold the impugne ..... 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