By TIOL News Service

MUMBAI, OCT 28, 2015: THE appellant (a public sector bank) was appointed by the Reserve Bank of India for setting up MICR-CPC to attend to cheque clearance of Financial Institutions etc. in Gujarat state.

The DGCEI after collecting the details of MICR-CPCs operated by various banks from Reserve Bank of India, followed up with the appellant for the details of the amounts collected by them when they conducted the business of cheque processing. After recording various statements, the authorities came to a conclusion that appellant is liable to discharge service tax liability on the amounts collected by them on MICR cheque processing charges during the period 16.07.2001 to 28.02.2005.

During the pendency of the proceedings the appellant discharged the service tax liability "under protest" and also paid the interest.

A SCN was later issued demanding ST with interest and proposal to impose penalties.

The adjudicating authority confirmed the demand of service tax with interest but dropped the proceedings initiated for imposition of penalties.

Before the CESTAT the appellant submitted that the definition of Banking and Other Financial Services is not applicable to the case in hand as appellant is charging One Rupee per cheque for executing the cheque processing of various Banks and Financial Institutions. Inasmuch as there has to be a client or customer, which in the present case is absent as they were extending the cheque clearance activity to other member Banks and not to any customers. It is further submitted that the cheques which have been cleared is for their members i.e. Indian Bank Association &no services are rendered to any client.

Furthermore, the issue was taken up by the Indian Bank Association, Mumbai with the Reserve Bank of India, who in turn took up the matter with CBEC and it was informed by letter dated 25.02.2008, that the Ministry of Law and Justice was consulted, and after due deliberation it was clarified that the activities undertaken and the charges collected by the appellant from members banks was squarely covered under Banking and Other Financial Services. And, therefore, since there was no intention to evade service tax, interest, as has been charged by the adjudicating authority needs to be set aside. Reliance is placed on the decision in Gujarat Narmada Fertilizers Co. Ltd. - 2012-TIOL-273-HC-AHM-CX.

The AR reiterated the departmental stand and also emphasized that liability of interest arises irrespective of whether there is intention to evade tax or otherwise.

The Bench after noting the undisputed facts as narrated by the appellant inter alia observed -

"8. It is seen from the records that the appellant is not seriously contesting the service tax liability. The clarification issued by CBEC vide letter dated 25.02.2005 will indicate that the amount collected by the appellant as charges for clearing cheques or clearing house, under the category of Banking and Other Financial Services. To that extent the appellant's appeal fails on merits. On limitation also we find that the appellant could have contested the matter."

In the matter of liablity of Interest, the Bench observed that the ratio of the Gujarat High Court decision cited (supra) would squarely apply to the case in hand, as on limitation, the appellant could have succeeded and the findings of the adjudicating authority in paragraph no. 39 of the impugned order also indicates that there was no intention on appellant's part of evading the service tax liability, which would mean that demand of service tax liability can be only within the limitation period, that is one year from the date of issuance of show cause notice.

Holding that the appellant is not liable to discharge any interest on the amount of service tax liability paid by them, the appeal to that extent was allowed.

Conclusion: While upholding the uncontested service tax liability, the interest liability confirmed by the adjudicating authority is set aside.

(See 2015-TIOL-2307-CESTAT-MUM)