Royal Bank of Scotland N.V. vs Commissioner of Cus. and C. Ex.

This is an appeal against the order of Customs, Excise & Service Tax Appellate Tribunal, dated 26-7-2011 relating to the service tax. The appellant is a bank, engaged in the business of providing banking and financial services to its customers including issuance of credit cards. Commissioner of Central Excise, Noida, who has also jurisdiction to deal with the service tax, issued show cause notice u/s 73 of the Finance Act, 1944 (hereinafter referred to as the "Act") for the period 1-6-2002 to 30-4-2006 to show cause why the service tax amounting to Rs. 2,63,42,711/- and education cess amounting to Rs. 4,13,431/-, aggregating to Rs. 2,67,56,142/- be not demanded under the provisions of Section 73 of the Act and why the penalty under Sections 76, 77 and 78 of the Act may not be levied. The reply has been filed by the appellant and thereafter, by order dated 21-1-2009 the demand has been confirmed by Commissioner of Central Excise and penalty has also been levied under Sections 76, 77 and 78 of the Act. Being aggrieved by the order, the appellant filed appeal No. 578 of 2009, which has been partly allowed. However, so far as demand towards service tax is concerned, same has been confirmed. Learned counsel for the appellant submitted that sub-section (105) of Section 65 defines "taxable service", the relevant clause for consideration is clause (zm), which prior to 10-6-2004 reads as follows:

to a customer, by a banking company or a financial institution including a non-banking financial company, or any other body corporate or commercial concerned, in relation to banking and other financial services.

The said clause has been substituted by Finance Act, 2004 w.e.f. 10-9-2004, which reads as follows:

to a customer, by a banking company or a financial institution including a non-banking financial company, in relation to banking and other financial services.

With effect from 1-5-2006 clause (zzzw) has been added as "to any person, by any other person, in relation to credit card, debit card, charge card or other payment card service, in any manner."

Clause 33a of the Act provides that, credit card, debit card, charge card or other payment card includes any service provided. The contention of the appellant is that the appellant bank received interchange fees from acquiring bank and such receipt does not fall within the purview of "banking and other financial services". According to the respondents such receipts fall within the purview of "banking and other financial services", accordingly, liable to service tax under clause (zm). The contention of the appellant is that subsequent amendment w.e.f. 1-5-2006 inserting clause (zzzw) read with clause 33a specifically provided that credit card, debit card, charge card or other payment card service come within the definition of taxable service. It shows that prior to 1-5-2006 such receipt was not taxable and did not fall within the definition of taxable service. Tribunal has not accepted the plea of the appellant.

Sri Amit Mahajan, learned counsel appearing on behalf of the respondent submitted that the issue involved in the present case is relating to the taxability of the receipt as interchange fee received from acquiring bank for providing credit card facility. Whether such service falls within the purview of "banking and other financial services", is a question, which relates to the classification and rate of tax and, therefore, this Court has no jurisdiction to entertain such question, inasmuch as such question can only be entertained by the Apex Court in appeal filed before the Apex Court u/s 35L of the Central Excise Act, 1944.

Reliance has been placed on the decision of the Karnataka High Court in the case of Commr. of Commissioner of Service Tax Vs. Scott Wilson Kirkpatrick (India) Pvt. Limited, and the decision of the Delhi High Court in the case of Commissioner of Service Tax Vs. Ernst and Young Pvt. Ltd.,

Learned counsel for the appellant further submitted that in a number of cases this Court has entertained the appeal relating to the classification and rate of tax and decided the appeal. Some of the cases are; Commissioner of Central Excise Vs. Amitdeep Motors, Commissioner of C. EX., Meerut Vs. Versatile Enterprises Ltd., Commissioner of Cus. and C. Ex. Vs. Balaji Tirupati Enterprises,

Learned counsel for the appellant may be correct that some of the appeals relating to the classification, rate of tax and valuation have been entertained by this Court but from the perusal of such decisions, it appears that the objection about the maintainability has not been raised by the learned counsel appearing on behalf of the Department and the same has neither been considered nor has been adjudicated. Therefore, these decisions cannot be taken as precedent on the issue.

The decision of the Karnataka High Court in the case of Commr. of S.T., Bangalore v. Scott Wilson Kirkpatrick (I) Pvt. Ltd. (supra) has observed as follows:

Broadly the following disputes do not fall within the jurisdiction of High Court u/s 35(g) of the Act:--

(a) Dispute relating to the service tax payable on any service/taxable service.

(b) The value of the taxable service for the purposes of assessment.

(c) A dispute as to the classification of services.

(d) Whether those services are covered by an exemption notification or not?

(e) Whether the value of services for the purposes of assessment is required to be increased or decreased?

(f) The question of whether any services are taxable services or not?

(g) Whether an activity is a service rendering activity or not, so as to attract levy of service tax?

(h) Whether a particular service falls within which heading, sub-heading of Section 65(105) of the Service Act, 1994 which defines "taxable service"?

It has been observed that all questions relating to the determination of rate of duty payable, entitlement of exemption under notification have to be decided by the Apex Court in an appeal to be preferred u/s 35L of the Central Excise Act, 1944.

Delhi High Court in the case of Commissioner of Service Tax v. Ernst & Young Pvt. Ltd. (supra) has held as follows:

It is noticeable that in sub-clause (3) to Section 129C, the words "determination of any question having relation to rate of duty or value for the purpose of assessment" have been used. Sub-section (4) to Section 129C refers to matters wherein the President or a member of the appellate Tribunal authorized in this behalf by the president may, dispose of any case singly. Under sub-clause (c) the single member could decide a matter of fine or penalty not exceeding Rs. 50,000/-. The Supreme Court observed that the phrase "relation to" ordinarily is of wide import but in the context of the Section, must be read as meaning a direct and proximate relationship to rate of duty or value for the purpose of assessment. It was accordingly observed:--

The order of the Additional Collector under appeal before CEGAT in the present case did not have any direct or proximate relation, for the purposes of assessment, either to the rate of duty applicable to the said goods or to the value thereof. All that the Additional Collector''s order did was to confiscate the said goods allowing to the appellant the option of redeeming them upon payment of fine of Rs. 10,000/-. That the appellant might avail of the option, pay the fine and clear the said goods, when questions as to the rate of duty and value for purposes of assessment might possibly arise, is far too remote a contingency to satisfy the test that is laid down.

It may be mentioned here that Delhi High Court has noted the decision of the Apex Court in the case of Navin Chemicals Mfg. and Trading Co. Ltd. Vs. Collector of Customs, wherein the Apex Court has held as follows:

It will be seen that sub-section (5) uses the said expression ''determination of any question having a relation to the rate of duty or to the value of goods for the purposes of assessment'' and the Explanation thereto provides a definition of it ''for the purposes of this sub-section''. The Explanation says that the expression includes the determination of a question relating to the rate of duty; to the valuation of goods for the purposes of assessment; to the classification of goods under the Tariff and whether or not they are covered by an exemption notification; and whether the value of goods for purposes of assessment should be enhanced or reduced having regard to certain matters that the said Act provides for. Although this Explanation expressly confines the definition of the said expression to Sub-section (5) of Section 129D, it is proper that the said expression used in the other parts of the said Act should be interpreted similarly. The statutory definition accords with the meaning we have, given to the said expression above. Questions relating to the rate of duty and to the value of goods for purposes of assessment are questions that squarely fall within the meaning of the said expression. A dispute as to the classification of goods and as to whether or not they are covered by an exemption notification relates directly and proximately to the rate of duty applicable thereto for purposes of assessment. Whether the value of goods for purposes of assessment is required to be increased or decreased is a question that relates directly and proximately to the value of goods for purposes of assessment. The statutory definition of the said expression indicates that it has to be read to limit its application to cases where, for the purposes of assessment, questions arise directly and proximately as to the rate of duty or the value of the goods.

On the consideration of the aforesaid decision, we are of the considered opinion that the present dispute relates to the classification that whether the credit card facility provided by the appellant falls within the term "banking and other financial services" and is accordingly covered under clause (zm) of Section 65(105) of the Act and whether such service is not liable to service tax or NIL rate of duty. Thus, we are of the view that such dispute cannot be examined by this Court and can only be examined by the Apex Court in an appeal u/s 35L of the Act. In the result, the appeal is dismissed on the ground of maintainability.