By TIOL News Service

CHENNAI, SEPT 08, 2017: BY an order, the CCE, Tiruchirapalli, confirmed a Service Tax demand of Rs.1,59,00,241/- relating to the period  10.09.2004 to 31.03.2007  on the ground that the  cheque return charges, minimum balance violation charges and non-maintenance of Quarterly Average Balance (QAB)  charges received by the appellant were taxable being the consideration received for providing banking service to its Customers (account holders). Penalties were also added to the demand.

In appeal before the CESTAT, the appellant submits that service tax has been levied by misinterpreting the law. Inasmuch as the three receipts are in the nature of penalty collected from the defaulter customers whose cheques were returned for whatsoever reason, minimum balance not maintained causing financial burden on the appellant bank, as well as not maintaining Quarterly Average Balance (QAB) which was required to be maintained by a Customer with the appellant bank, and did not form part of the gross value of taxable service provided by the appellant bank to its Customers.

That according to section 65(105)(zm) of the Finance Act, 1994, provision of banking service of the nature described in section 65(12)(ix) of the Act provided is only taxable and nothing else; that the impugned receipts were penalties and do not form part of the gross value; that the Appellant had not made any deliberate escapement of receipts from the purview of taxation nor had any intention to cause evasion and, therefore, neither is tax imposable nor any penalty is leviable.

That banking receipts as restricted therein shall only form part of the gross value of consideration received due to use of the word  "namely"  in section 65(12) and in section 65(12)(ix); that the term  "operation of bank accounts"  does not take into its fold the penal receipts; that there is no provision of service in consideration of such receipt ; that any breach of contract is compensated by penalty and these three receipts were realized as penalty for the breach of the contract made by the account holders.

Reliance is placed on the Circular F.No. 332/29/2009-TRU dated 26.4.2010  wherein it is clarified that penal rent for retaining the container beyond pre-determined period being  "detention charge" is not liable to service tax; thatin Circular  No.96/7/2007-ST  dated 23.8.2007 it is clarified that  "surcharge"  collected on the delayed payment of telephone bills is not a consideration taxable under the Finance Act, 1994.

The AR supported the order of the original authority.

The Bench considered the submissions and while commenting that the Circulars referred to by the appellant are not relevant to the issue on hand since these aforesaid receipts are inextricably connected with the provision of banking service and is also an integral part thereof.

The Tribunal further observed -

++ The scheme of taxing entry under Section 65(105)(zm) of the Act, envisages taxation of any services provided by a bank and all such services provided in relation to provision of banking services are sought to be taxed by that entry. Accordingly, the scope of services provided in relation to operation of the bank account falls within its ambit. All the three charges stated above were received by the appellant  "in relation to"  provision of banking service and most particularly operation of bank accounts opened with it by its customers. The receipts made by appellant from its customers for acting for them on their instructions or terms agreed between them are valuable consideration received by the appellant while providing service of maintaining their accounts with it. That is not the penalty realized by the bank from its customers.

++ Penalty as is commonly understood in law is a realization against infraction of law. But a consideration received by one party from the other in terms of fulfillment of their promises as per agreed terms between them is not penalty. Nomenclature has no relevance to interpret a taxing entry. The object of the taxing entry is determinative of the levy. The appellant bank while providing the banking service to its customers had realized the consideration for providing aforesaid three services to its accounts holders. That was not been realized at its will and pleasure. Therefore such receipts are not beyond the scope of banking services provided  "in relation to"  the operation of account with a bank. [Doypack Systems Pvt. Ltd. =  2002-TIOL-389-SC-MISC  relied upon]

++ The appellant emphasized that the term  "namely"  being used at two places of section 65(12) of the Act, that does not broaden the scope of taxation to tax the aforesaid three receipts made by it. But it fails to appreciate that a definition only assigns meaning to a term or expression in legislation without being determinative of scope of a taxing entry . The taxing entry enacted in section 65(105)(zm) of the Act is determinative of the levy. No doubt, the term  "namely"  has been used at two places of the definition clause. But use or absence of such term is not determinative of grant any exemption from taxation of above said three receipts.

++ When taxing entry makes the intention of the legislature clear that the services provided  "in relation to"  operation of bank account, the term  "namely"  used in section 65(12) is to be read in that context since legislature defines certain terms and expression only assigning certain meaning to that term or expression unless the context otherwise requires. Therefore section 65(12) not being the taxing entry, is subservient to the provision of section 65(105)(zm) of the Act which has defined scope of taxation. Accordingly, the plea that use of the term  "namely" , in section 65(12) of the Act takes away aforesaid three receipts from the scope of taxation fails to stand. It may further be stated that what that is relevant for taxation is the intention of the taxing entry. The taxing entry brings the subject into tax. The provision of service operation of accounts in relation to banking has served that purpose. Accordingly, various services covered by section 65(12) of the Act submit to the scope of taxation under section 65(105)(zn) of the Act.

Penalty:

++ It may be stated that what that is required by law to disclose to Revenue by an assessee, if not disclosed and such non-disclosure is attributable to the intention of the assessee, that amounts to suppression. It was left to the assessee to include the aforesaid three receipts in its tax return at least under protest. But that was not done. Therefore, it cannot be said that the appellant had honest belief of no taxation of the aforesaid three receipts. Such deliberate non-disclosure and non-payment of tax on aforesaid three receipts calls of levy penalty on the appellant. Learned adjudicating authority has rightly imposed such penalty.

The service tax demand as well as penalties imposed were confirmed and the appeal was dismissed.

(See 2017-TIOL-3269-CESTAT-MAD)