The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), ruled that the value of Public Provident Fund (PPF) funds management services received by the service provider prior to 10.9.2004, in respect of “operation of bank accounts” is not subject to service tax.
The appellant, M/s State Bank of India, Mumbai, received an intimation from the Reserve Bank of India, Public Accounts Department, New Delhi stating that an amount of Rs.7,13,15,955/- is being paid as commission charges relating to the financial year 2003-2004.
Since the payment was received by the appellant on 30.03.2005, and as the Mumbai Branch did not receive clarity from their head office on taxability of such commission received from RBI for maintenance of Public Provident Fund (PPF) accounts, the appellants had deposited service tax rate of 10.2% for an amount of Rs.72,74,227/- along with other service tax dues payable to the government on the taxable services under the head of account.
The original authority concluded that the appellant is engaged in the service of management of PPF fund and the words ‘all forms of fund management’ appearing in the sub-clause (v) of the definition given under section 65(12) of the Finance Act, 1994 is all about management of funds and allied activities; even the claim of the appellant that the service namely ‘operation of bank accounts’ cannot be remotely related to service of ‘management of PPF account’ rendered by the appellants to the RBI.
The Counsel for appellant submitted that the activity performed by the appellant M/s State Bank of India, Mumbai is not management of PPF funds but maintenance of PPF accounts, which can be considered as taxable only w.e.f. 10.09.2004 when the present sub-clause (ix) was inserted in clause (a) of section 65B (12) to cover other financial services like lending, issue of pay order, operation of bank accounts etc. under the scope of taxable category of Banking and Other Financial Services.
A Two-Member Bench of the Tribunal comprising S.K. Mohanty, Member (Judicial) and M.M. Parthiban, Member (Technical) observed that “we find that the impugned order of the Commissioner(Appeal) holding that the services provided by the appellants are taxable under the category of ‘funds management’, is not legally sustainable. “
The Bench also noted that “We find that the appellant is eligible to claim refund of service tax paid under protest in terms of the proviso to Section 11B, subject to the condition that such a refund claims are required to be filed in terms of section 11B of Central Excise Act, 1944, which have been made applicable to service tax as per Section 83 of the Finance Act, 1994.”
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