CITIBANK N.A. Vs. COMMISSIONER OF SERVICE TAX

JUDGEMENT

(1.) IN adjudication of a show -cause notice dt. 16.2.2007, the ld. Commissioner demanded service tax of over Rs. 2.49 crores from the appellants under the head "Banking and Other Financial Services" (BOFS, for short) falling under Section 65(12) of the Finance Act, 1994, for the period Aug'02 to March'06. He also imposed penalties on them. After examining the records and hearing both sides, we note that the impugned demand is on the gross amount of Rs. 28,60,43,445/ - paid by Citibank (appellant) to 'VISA' as consideration for the service received from the latter. The transaction pertained to what is called "VISA CARDS" issued by Citibank to their customers (card holders) and utilized by the latter for shopping purposes. The shop owners (referred to as 'Merchant Establishments' in banking parlance) would swipe the VISA card in a machine provided by the appellant qua "Acquiring Bank". In this capacity, the appellant would acquire the debt arising out of the above shopping. This acquisition of debt involves validation of the card through VISA, debiting and crediting of the prices of goods and settlement of accounts. We are told that VISA is an international organization headquartered in Japan for the above services. In the facts of the present case, Citibank acted as both 'Issuing Bank' and 'Acquiring Bank' and, accordingly, the transactions took place between Citibank and VISA with the former acting in dual capacity. It is also noticed that the appellant has been cited as the 'Acquiring Bank' in the SCN as well as in the impugned order, which would indicate that the impugned demand of service tax is on the gross amount paid by the Acquiring Bank to VISA during the period of dispute. It is the case of the appellant that the service received by the Acquiring Bank from VISA during the above period was in the nature of "settlement" envisaged under Clause (33a) of Section 65 of the Finance Act, 1994, inserted on 1.5.2006 and, therefore, the levy was not permissible before the said date. In this connection, reference is made to a similar transaction involving a stock exchange, examined by CBEC in circular dt. 18.5.2007. It is pointed out by the ld. consultant that the Board clarified that the transactions between the exchanges and their clearing houses would not amount to "provision and transfer of information and data processing". Contextually, we note that it was this limb of BOFS under Section 65(12) of the Act which has been invoked by the department in the present case for levy of service tax from the appellant. It is also pointed out that the service received by the Acquiring Bank from VISA was similar to that rendered by the former to Merchant Establishment. As between the Acquiring Bank and Merchant Establishment, it is pointed out that a similar demand was dropped by the Commissioner vide Order -in -Original No. 29/2006 dt. 21.11.2006 passed by the Commissioner of Service Tax, Chennai. Ld. consultant has invited our attention to para 21.4 of the said order, which says that, prior to 1.5.06, credit card services were taxed with limited and specific scope of services rendered by banks to card holders and that credit card services in the nature of 'settlement' were not to be taxed prior to the said date. According to the ld. consultant, if this be the position of the service rendered by the Acquiring Bank to Merchant Establishment, it would not be different in relation to the service received by the Acquiring Bank from VISA. The ld. consultant has also argued that VISA had their offices in India during the material period and, therefore, service tax, if any, ought to have been recovered from them in terms of the relevant provisions of the Finance Act, 1994 as they stood prior to 18.4.2006. In this connection, it is pointed out that it was on 18.4.06 that Section 66A was inserted in the Finance Act, 1994 for making service -recipient liable to pay service tax where the service is received from a foreign party having no office in India. In this connection, reliance has been placed on the Tribunal's decision in Foster Wheeler Energy Ltd. v. Commissioner 2007 (6) S.T.R 443 (Tri. -Ahmd.), wherein services provided from outside India prior to 18.4.06 were held not exigible to service tax in the hands of the service -recipient who was resident in India. We have heard the ld. JCDR also who has argued in defence of the impugned order.

(2.) After considering the submissions, we have found prima facie case for the appellant against the demand of service tax and penalties. The submissions made by the ld. consultant, which we do not want to repeat, are impressive. He has explained the mechanism of operation of VISA cards and we are convinced, for the present purpose, that the appellant qua Acquiring Bank is not liable to pay service tax in the "BOFS" category in respect of the amount paid by them to VISA during the material period. Prima facie, such liability arose for the first time on 1.5.06, from which date they have been paying service tax.

(3.) IN the result, we grant waiver of predeposit and stay of recovery in respect of the amounts of service tax, interest on tax and penalties.