By TIOL News Service

MUMBAI, OCT 27, 2014: THE bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian sub-continent. Bank of Madras merged into the other two presidency banks-Bank of Calcutta and Bank of Bombay-to form the Imperial Bank of India, which in turn became the State Bank of India. The government of India nationalised the Imperial Bank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the government took over the stake held by the Reserve Bank of India. SBI was ranked 303 rd in the Fortune Global 500 rankings of the world's biggest corporations for the year 2014.

Any Indian would be proud of an institution that has such an impressive lineage. After all, as the tag line says, "The Nation banks on us."

Be that as it may, the Commissioner of Service Tax, Mumbai-II confirmed a Service Tax demand of Rs.2.61 Crores along with interest and impressive amounts of penalty on the ground - the applicants are availing Online information and data base access or retrieval service through computer network service and as the 'service provider' is located abroad, the bank is required to discharge the Service Tax under reverse charge mechanism .

The CESTAT while waiving the pre-deposit of the adjudged dues and granting a stay in the matter observed –

"6. We find that as per the provision of the above section, the service is to be provided to any person in electronic form through a computer network. In the present case, as per the argument of the Revenue, M/s EquantPte Ltd. are the provider of Virtual Private Network facility. As per the argument of the Revenue, the applicants are the beneficiary through this network facility inasmuch as the same enables the foreign offices of SBI to access to this besides updating the same on regular basis. As the data is being retrieved or access by the applicants to their own database which were in US, UK and India, therefore, it cannot be prima facie said that the applicants have received the services. In these circumstances, the applicants have made out a case in their favour. Therefore, pre-deposit of the dues is waived and recovery thereof is stayed during the pendency of the appeal."

We reported this as 2013-TIOL-767-CESTAT-MUM.

Incidentally, the appellant and 40 other appellants had challenged the SCNs issued on the ground of jurisdiction and the Bench had held [2013-TIOL-558-CESTAT-MUM] –

Commissioner of Service Tax, Mumbai and officers subordinate to him are Central Excise Officers duly empowered to assess and collect service tax within their jurisdiction - s.83A envisages adjudication of not only penalty but also determination of ST liability and interest thereon - Chief Commissioner of CE can assign adjudication of ST cases to any CE officer within his jurisdiction: CESTAT

Be that as it may, the appeal filed by State Bank of India was decided recently.

After hearing the submissions made by both sides, the Bench set aside the order &allowed the appeal by observing thus –

++ We observe that revenue has not been able to controvert certain facts stated by the appellants. These facts are that the service provider is located abroad, that the service recipient i.e. foreign offices were located abroad, the services were rendered outside India and payments were made by the foreign office located outside India to the service providers also located outside India. In this situation, it is not understood how the Revenue is alleging that the service provided amounts to service received in India from outside India. The appellants have made a positive statement to the effect that the foreign offices are connected to the data centre abroad through VPN and it is not possible for the domestic offices to have any access to FO network. In the absence of contradiction by the revenue on these facts, we cannot but agree with the appellant that the said service is not covered under section 66A read with rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.

++ The very description under the contract between SBI and Equant shows that Equant IP VPN is a managed network service that provides secure IP internet working which enables connectivity. The IP VPN network does not allow customers routers in different VPNs to connect with one another. Therefore, it is clear that the said VPN does not provide connectivity between SBI domestic office and SBI foreign office.

++ In the present case, it has nowhere been disputed by revenue that the data centre is located abroad to which the foreign offices have access for data and its retrieval. The ownership of data is quite clearly with the SBI foreign offices. Equant have not provided any data for access/retrieval . They have simply enabled the connectivity. They have provided connectivity which enables the FOs to access/retrieve data online. The responsibility of Equant is to ensure that network VPN functions properly. The Commissioner has totally misread the meaning of “Services provided in relation to online information and database access or retrieval”. The words “in relation” qualify “information and database access or retrieval”. Clearly the service provided has to relate to information access/retrieval and Equant has not provided information and database. The ownership of data is with the FOs. This is a vital fact.

++ The Commissioner's finding that it is not necessary that the original data should emerge or originate from the provider of VPN network is an incorrect reading of section 65(75) and 65(105)(zh).

Virtual access: By the way, retrieving this news from our database does not cost, but the judgment will, now and later…

(See 2014-TIOL-2097-CESTAT-MUM)