Whether telephone bill collection charges collected by bank are leviable to service tax under BAS?

PJ/Case Law/2013-14/1954

Case:-COMMISSIONER OF CUSTOMS, CENTRAL EXCISE VERSUS FEDERAL BANK LIMITED

Citation:-2013 (29) S.T.R. 554 (Ker.)

Brief facts:-The common issue in the connected appeals filed by the department against the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) is that was the Tribunal right in holding that the collection of telephone bills by the respondent bank for Bharat Sanchar Nigam Limited (BSNL), Airtel and other companies is not business auxiliary service attracting liability for service tax falling under Section 65(19) of the Finance Act, 1994. The Finance Act, 1994 was amended by Section 90 of the Finance (No. 2) Act, 2004 introducing clauses 12 and 19 in Section 65 of the Finance Act, 1994. While sub-section 12 of Section 65 defines banking and other financial services which specifically excludes service pertaining to cash management, clause 19 defines business auxiliary services which includes in it any customer care service provided on behalf of the client including service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue of collection or recovery of cheques, payments, etc.

Appellant’s contention:-The case of the department is that service rendered by respondent by way of collection of bills for telephone companies and other parties is a business auxiliary service attracting tax under clause 19 of Section 65.

Respondent’s contention:-The contention of the respondent is that collection of bills is nothing but a cash management service and the same is specifically excluded from the definition clauses covering banking and other financial services under clause 12 of Section 65. It is further pointed out that the exclusion of cash management service from clause 12 was deleted with effect from 1-6-2007 and thereafter respondent bank is remitting service tax including for cash management service which covers bill collection for the companies referred above.

Reasoning of judgment:-The honorable bench heard Standing Counsel appearing for the appellants and counsel appearing for the respondent bank. On going through the Tribunal’s order we notice that the Tribunal has held that services rendered by the respondent in the form of collection of bills and remittance of the same to their clients namely BSNL, Airtel, etc. are not a business auxiliary service. The Standing Counsel submitted that the Tribunal’s finding is fallacious because clause 97 specifically provides for collection of bills, for recovery of cheques and payments as specifically covered under business auxiliary service. As a matter of fact various clients of the respondent like BSNL, Airtel, etc. maintain accounts with one or two branches of the bank with Hub Account. Customers in receipt of telephone bills are free to deposit the bill amount in any branch of the respondent bank which will collect the payment and credit in the Hub Account maintained by their client company. In fact the bank is issuing receipt to the subscribers of telephone against bill amount paid by them to the bank. For the service rendered the bank is said to be collecting a specified rate of commission of Rs. 5.50/- per every bill. It is this amount which is subject to service tax. Even though the finding of the Tribunal that the service rendered by the bank is not a business auxiliary service does not appear to be correct, we feel argument of the counsel for respondent that the service essentially falls under cash management service under clause (12) of Section 65 is correct. In fact cash management service is deleted from exclusion clause contained in clause 12 of Section 65 with effect from 1-6-2007 and in the clarification letter issued by the Central Board of Excise and Customs the cash management service is explained as follows :-
“At present cash management is specifically excluded from the scope of this service. Specific exclusion of cash management is being omitted. Consequently, cash management services includes services of collection of receivables, execution of payment, management of liquidity and providing customized Management Information System (MIS) reports, provided by banks to clients such as corporate clients.”
From the above it is clear that the service of collection of receivables is a cash management service rendered by a banking company. In fact cash management service remained excluded for the purpose of levy of service tax until it is deleted through an amendment with effect from 1-6-2007. Prior to the deletion clause 12 was covering the following service :-
“(12) banking and other financial services means -
(i)     financial leasing services including equipment leasing and hire-purchase;
(ii)    credit card services;
(iii)   merchant banking services;
(iv)   securities and foreign exchange (forex) broking;
(v)    asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, but does not include cash management;
(vi)   advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy;
(vii) provision and transfer of information and date processing; and
(viii) other financial services, namely, lending; issue of pay order, demand draft, cheque, letter of credit and bill of exchange; providing bank guarantee, over draft facility, bill discounting facility, safe deposit locker, safe vaults; operation of bank accounts;
(b) foreign exchange broking provided by a foreign exchange broker other than those covered under sub-clause (a);”
It is clear from the above that the provisions contained in clause 12 are rather exhaustive covering all services of banking and other financial services. The Standing Counsel for the revenue contended that the service rendered by the respondent though essentially banking service falls within the description of business auxiliary service as defined under clause 19(vii). We feel in a broad sense cash management service is also a business auxiliary service. However the question is which is the more appropriate charging provision under which the Respondent Bank’s service would fall. In order to examine this we have to refer to the definition of business auxiliary service also and for this purpose clause 19(vii) defining ‘business auxiliary service’ is extracted hereunder.

“a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision.”

We are of the view that the above definition is with specific reference to each and every service covered by sub-clauses (1) & (vi) which do not specifically cover Banking and other financial services. Banking and other financial services are specifically covered by clause 12 and there is no scope for charging tax on any service rendered by Banks under any other head. In other words we are of the view that clause 12 of Section 65 covers all charging services rendered by Banks. When Cash Management Services stood excluded from the purview of service tax at the hands of the Bank until 31-5-2007, the authorities cannot sustain service tax on an essentially Cash Management Service under any other charging head including Business Auxiliary Service. We therefore uphold order of the Tribunal though not for the reasons stated by them but for the findings rendered by us above. It also conceded that from 1-6-2007 onwards the very same service is taxed for service tax at the hands of the respondent by the department under the head Cash Management Service. We therefore dismiss these appeals by upholding the orders of the Tribunal cancelling the assessments on respondent for the service rendered by them until 31-5-2007.

Decision:-Appeal dismissed.

Comment:- The analogy drawn from this case is that the collection of telephone bills by bank is a cash management service which stood excluded from the definition of taxable service of banking and other financial services upto 31.5.2007. Thereafter, the said cash management service became taxable separately as Cash Management Service. Therefore, for the period prior to 31.05.2007 when it was specifically excluded from the levy of service tax at the hands of banks, the same cannot be made liable to service tax under any other category such as BAS.

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PJ/Case Law/2013-14/1954

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