Service Tax - whether services provided by Banks such as collection of telephone bills, collection of insurance premium on behalf of client companies are liable to service tax under category 'business auxiliary service': NO, SC
THIS is a long story. The period is 01.07.2003 to 31.03.2005. The assessee bank provided Cash Management Services such as:
a) Maintenance of accounts of CMS clients and undertaking all types of transactions including receipt and payment of cash in such accounts, Collection of cheques
b) Collection of bills and other receivables
c) Payment of invoices on behalf of the clients
d) Pooling of funds from various centres
e) Transfer of funds to various locations
f) Issue of TT/MT/DD/PO
g) Distribution of funds for credit of the accounts of beneficiaries at various centres
h) Centralized Collection and Payment accounting solution etc.
Revenue proceeded against the banks on the ground that they are carrying out "Business Auxiliary Services" and the usual confirmation of duty, interest and penalty was carried out sincerely.
The CESTAT observed that Cash Management Services would be taxable under the category of Banking and other financial services only with effect from June 2007; that it is very clear during this period the Cash Management Service is specifically excluded; that when the service is excluded from the scope of Banking and other financial services, the intention of the Government is not to subject it to service tax at all; that Revenue cannot say that the said service would be classifiable under the category of Business Auxiliary Service and subject it to levy, and allowed the Bank's appeal. (2009-TIOL-584-CESTAT-BANG)
Revenue took the matter in appeal to the High Court. The High Court observed,
Banking and other financial services are specifically covered by clause 12 and there is no scope for charging tax on any service rendered by Banks under any other head. In other words, we are of the view that clause 12 of Section 65 covers all charging services rendered by Banks. When Cash Management Services stood excluded from the purview of service tax at the hands of the Bank until 31.5.2007, the authorities cannot sustain service tax on an essentially Cash Management Service under any other charging head including Business Auxiliary Service.
The High Court upheld the order of the Tribunal, though not for the same reasons. ().
The persistent Revenue took the matter in further appeal to the Supreme Court.
The Supreme Court recently upheld the High Court order and dismissed the Revenue appeal. The Supreme Court also noted "when for any reason, a taxable service is, prima facie classifiable under two or more sub-clauses of clause (105) of Section 65, classification shall be effected as follows:
(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;
(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, insofar as this criterion is applicable;
(c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration."
Supreme Court opined that the the stand of the High Court is supported by the above statutory provision also and requires no interference.