COMMISSIONER OF SERVICE TAX Vs. ICICI BANK LTD.

JUDGEMENT

(1.) M/s. ICICI Bank Ltd. has filed an appeal contesting Order -in -Original No. 04/ST -II/KKS/2011 dated 28th February 2011 in which Commissioner of Service Tax, Mumbai -II has confirmed service tax of Rs. 91,80,371/ - for rendering of 'banking and other financial services' valued at Rs. 15,83,07,200/ - for the period from 16th July 2001 to 31st March 2004 and interest thereon while refraining from imposition of the penal provisions of Finance Act, 1994. Revenue, too, is aggrieved by the impugned order to the extent that 'cum -tax' value has been adopted for determining the value of the taxable service and has filed its appeal for resolution of this issue. Both the appeals are taken up for disposal in this order.

(2.) The circumstances leading to the impugned order relate to relief and savings bonds issued by the Reserve Bank of India wherein M/s. ICICI Bank acts as 'agency bank' for sale of bonds to the public. In this role as 'receiving office', subscribers to the bonds, detailed in the Bond Ledger Account (BLA), are enrolled directly by M/s. ICICI Bank or through brokers. This 'receiving office' registers brokers, accepts forms and payments, issues certificates, maintain Bond Ledger Accounts, pays interest at specified intervals, redeems the bond at the end of tenor and pays brokerage. In return, they are remunerated by the Reserve Bank of India which, as per their agreement, is brokerage for sale effected directly by M/s. ICICI Bank to subscribers and a separate commission for the handling of sale, payment of interest and redemption value and keeping accounts. On the brokerage, commission and service charge received from Reserve Bank of India, M/s. ICICI has paid service tax of Rs. 40,76,137/ - as provider of 'business auxiliary services' for the period between 1st July 2003 and 31st March 2004. According to the show cause notice DGCEI/MZU/I&IS'A'/12(3)16/2004 dated 17th October 2006 issued by Additional Director General, DGCEI, M/s. ICICI Bank has carried out securities brokering for which commission of one percent of total bond value has been remunerated by RBI and has also rendered custodial service by maintaining the Bond Ledger Account and services incidental thereto both of which were liable as 'banking and other financial services' defined in Sec. 65(12) of Finance Act, 1994 and thus taxable under Sec. 65(105)(zm) of Finance Act, 1994. It has been the contention of M/s. ICICI Bank that they are liable to service tax under Sec. 65(105)(zzb) of Finance Act, 1994 as providers of 'business auxiliary service' defined in Sec. 65(19) of Finance Act, 1994 after its introduction on 1st July 2003 and that as 'receiving office' they do not render 'banking and other financial service'.

(3.) The original authority held that M/s. ICICI Bank has sold bonds, which have been ascertained to be government securities, directly to subscribers and has earned brokerage thereon from the Reserve Bank of India which is liable to tax. It was also held that by issuing Certificate of Holding, by opening of new and maintenance of old Bond Ledger Accounts and by paying interest as well as redemption value, the 'receiving office' has rendered custodial service liable to tax. In arriving at the conclusion that the claim of M/s. ICICI Bank to be taxable as provider of 'business auxiliary service' is not tenable, the original authority has attempted to distinguish between the two taxable services with reference to Sec. 65A of Finance Act, 1994, by holding that, in the context of the definition specifying 'banking company', that status of the organisation is the key to specificity that will determine classification under Sec. 65(12).