By TIOL News Service

MUMBAI, APRIL 22, 2013: THE appellants are engaged in providing various services to M/s Citi Bank and allied entities in India and abroad. They undertook collection and sales services, call center services and computerized data processing services for the client.

On the collection and sales services they have been discharging service tax liability under ‘Business Auxiliary Services (BAS)' w.e.f 01/07/2003 and on call center services they have been discharging service tax liability under BAS w.e.f 01/03/2006 as the said service was exempt prior to 01/03/2006.

In respect of computerized data processing services, they have been discharging service tax under the category of ‘Business Support Services' w.e.f 01/05/2006 when the said service was brought under tax net.

On 20/10/2003 the appellant wrote a letter to the jurisdictional R/S informing the department of the activities undertaken by them and also conveying that IT services in the nature of computerized data processing services undertaken by them are outside the purview of ‘Business Auxiliary Service'. On 23/10/2008 the department issued a SCN for the period July, 2003 to March, 2004 to the appellant with respect to “computerized data processing” undertaken by them proposing to classify the same under ‘Business Auxiliary Services' as defined under section 65(19)(iv) of the Finance Act, 1994 and demanded Service Tax of Rs.14,90,73,095/-.

The notice was adjudicated by the CCE, Thane-II and he confirmed the demand and imposed penalties and interest.

The appellant is before the CESTAT and submits -

+ There is a variation in the allegation in the SCN and the findings of the adjudicating authority inasmuch as while the SCN alleged that the appellant's service is ‘computerized data processing' which is incidental or ancillary to the customer care services undertaken by their client to their customers, in the order-in-original, a totally different ground [that the appellant is collecting raw data from the client's customers] has been taken to confirm the demand and on this ground alone the order is not sustainable in law.

+ As per the definition of ‘Business Auxiliary Services' under section 69(19) of the Finance Act, 1994, in the explanation thereof, computerized data processing has been specifically excluded from the scope of BAS but neither in the SCN nor in the order there is any allegation or finding that the activity undertaken by the appellant is not computerized data processing.

+ If that be so, the question of levy of service tax on the activity undertaken by the appellant, which is nothing but computerized data processing, cannot come within the scope of BAS and hence the entire demand is unsustainable.

+ w.e.f 01/05/2006 a new category of ‘Business Support Service' (BSS) was brought under tax net and accounting and processing of transactions have been specifically included thereunder and explanation to BAS has also been modified so as to exclude computerized data processing services from the said explanation for the reason that the same is included under BSS.

+ the demand is restricted to the period from July 2003 to March, 2004 and there is been no demand for the subsequent period although same transaction has been carried;

+ case law of Indian National Shipowners' Association [2009-TIOL-150-HC-MUM-ST] is relied upon wherein it was held that, when a tax is imposed under a new entry with effect from a particular date, it has to be presumed that for the period prior to that date, tax is not leviable unless the new entry has been carved out of earlier existing entry; that in the present case, BSS came into force w.e.f 01/05/2006 and it has not been carved out of BAS and hence the demand for the period prior to 01/05/2006 is not sustainable.

The Revenue representative reiterated the findings of the adjudicating authority and submitted that the conclusion of the Commissioner that the appellant was rendering service incidental or ancillary to customer care service by the bank to their customers is a plausible interpretation and, therefore, sustainable in law; that appellant should be put to terms.

The Bench observed -

“5.1 The activity undertaken by the appellant in the instant case is, processing of the transactions of their client electronically. In other words, they were undertaking computerized data processing for their client using the computer systems of the client and the clients are located not only in India but all over the world. It is also a fact that the appellant is not interacting with the bank's customers for collection of any data. The data already collected by the bank in their various branches are electronically processed by the appellant. In other words, the appellant is undertaking back-office operations for the client. The Citi Bank group has entrusted the processing of banking transactions electronically to the appellant. Since computerized data processing is specifically excluded from the scope of BAS as per explanation thereof, the question of confirmation of demand under BAS prima facie does not arise. Secondly, it is seen that, bulk of data processing is done for the bank's branches situated abroad. If that be so, the activity undertaken by the appellant would amount to export of service and on that account also no service tax would be payable by the appellant. Thus, we are of the view that the appellant has made out a strong prima facie case in their favour for grant of stay against the impugned order. Accordingly, we grant unconditional waiver from pre-deposit of the dues adjudged against the appellant in the impugned order and stay recovery thereof during the pendency of the appeal.”

Noting that the Revenue involved is in excess of Rs.14 crores, the Bench, at the request of the appellant, granted an early hearing in the matter.

(See 2013-TIOL-636-CESTAT-MUM )