By TIOL News Service

NEW DELHI, JUNE 13, 2017: THIS is a Revenue appeal.

The respondent is engaged in rendering various travel-related services and is duly registered with the Service Tax Department for the same.

The Respondent issues travelers cheques, pre-paid cards, demand drafts and makes telegraphic transfers for travelers receiving its services and charges encashment services fees. In the process of issuing these instruments, the Respondent first buys foreign currency on its' own and being the owner thereof, issues the above instruments. Respondents claim is that such activities, being in the nature of money changing, were made liable to Service Tax from 16.05.2008 and the Respondent has duly paid Service Tax on the same therefrom.

For the period from October 2003 to March 2009, proceedings were initiated against the respondent vide SCN dated 20.04.2009, in pursuance to audit of records of the Respondent. It was alleged that the said activities of the Respondent are in the nature of ‘foreign exchange broking' taxable under Section 65(105)(zm) of the Finance Act, 1994 from October 2003.

The adjudicating authority passed the impugned order concluding thus –

i) That the respondent does not carry out any broking activities, i.e. assisting in buying or selling foreign exchange on behalf of the client.

ii) That the respondent buys foreign exchange and sells the same and thus its activities are appropriately classifiable as money changing activities taxable from 16.05.2008 .

iii) That the demand of Service Tax of Rs.99,25,729/- for the period prior to 16.05.2008 is not sustainable.

iv) That the demand of service tax of Rs.8,39,038/- for the period from 16.05.2008 to 31.03.2009 already stands paid by the Respondent and is liable to be appropriated.

v) That there is no cause for imposing any penalty.

As mentioned, the Department has preferred the present appeal and submits that the activity undertaken is ‘foreign exchange broking' activity chargeable to tax from October 2003. The TRU letter dated 6 October 2005 is also cited in support.

The respondent submitted that by issuance of circular dated 12.03.2007, the CBEC changed its views and clarified the issue as follows:

"2. The issue has been examined by the Board. It was noted that "money changing? and "foreign exchange broking? are two distinct activities. Money changing is an activity of sale and purchase of foreign exchange at the prevalent market rates. On the other hand, foreign exchange broking is the activity performed as an intermediary, on a commission/brokerage basis, for facilitating the clients who wish to buy or sell foreign exchange. The foreign exchange broker providing foreign exchange broking service does not hold title to the foreign exchange. Accordingly, Board is of the view that service tax is not leviable on money changing per se, as such activity does not fall under the category of foreign exchange broking.

3. The instruction issued earlier vide letter F. No. 341/44/2005-TRU, dated 6-10-2005 stands superseded."

The Bench considered the submissions and observed –

"13. We note that the respondent, for the purpose of issue of travelers cheque, demand draft, etc. purchased foreign exchange on their own account. Such foreign exchange is transferred to the customer in the form of instruments such as travelers'cheque, and in the process certain commission is earned by the respondent. It is to be noted that the purchase of foreign exchange by the respondent is on their own account and not on behalf of the customer to whom it is ultimately transferred. To this extent, the respondent holds the title to the foreign exchange. Hence, we are of the view that the activity cannot be brought within the nature of foreign exchange broking . It is more in the nature of money changer who purchases foreign exchange and sells the same at prevailing rates. The amount charged by the respondent from customers for issuing letter of credit, demand draft traveler's cheque etc. is not earned by the activity of foreign exchange broking. In terms of the CBEC circular clarifying the issue dated 12.03.2007 such activity which falls within the nature of money changing, cannot be charged to service tax under section 65(12) read with 65 (105)(zm) for the period upto 15.05.2008. Consequently, the demand of service tax in this case is not sustainable and there is no infirmity in the impugned order dropping the service tax."

The impugned order was upheld and the Revenue's appeal was rejected.

(See 2017-TIOL-1985-CESTAT-DEL)