1. The petitioner is a private limited company, engaged in the business of manufacture and export of coir, jute and other allied products. The petitioner is aggrieved by the service tax levied and deducted; allegedly with respect to the remittances made by foreign buyers, in foreign currency, to the 1st respondent-Bank. The petitioner is not liable to pay service tax on the amounts of foreign currency remitted to India, is the essential contention advanced in the writ petition, supplemented by the further contention that if at all it is to be levied, the same can be only on the gross charges levied by the Bank for the service rendered. The petitioner seeks for a declaration that the petitioner is not liable to pay service tax for the remittances of foreign currency made from overseas, towards the value of the goods exported by the petitioner and seeks interdiction of the respondent-Bank from making such deductions. The petitioner would also pray for refund of the amounts already deducted.
2. The respondent-Bank as also the respondents 3 to 6, being the officials of the Union of India, have filed counter affidavit in the matter. The exact computation of the amounts have been shown by the respondent-Bank in Exhibit R1D, produced along with the affidavit dated 04.04.2014. It is evident from Exhibit R1D that the respondent-Bank levies charges as "commission" and "exchange" on the conversion and deducts service tax on such charges as also deducts tax as per the Bank Circular; as prescribed in the Rules. By a reply affidavit, the petitioner accepts levy on the conversion charges; but, however, assails the alleged unauthorised levy of service tax on the entire amount credited in the account.
3. The issue being essentially one of statutory interpretation, as also the scope of the delegated powers of the rule making authority, pointed reference has to be made to the various provisions of the Finance Act, 1994. The relevant provisions are the following:
Finance Act, 1994 Sec.65:
"(12) "banking and other financial services" means -
(a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern namely:-
xxx xxx xxx
(iv) securities and foreign exchange (forex) broking, and purchase or sale of foreign currency, including money changing".
"(44) "service means" any activity carried out by a person for another for consideration, and includes a declared service, but shall not include -
(a) an activity which constitutes merely, - xxx xxx xxx
(iii) a transaction in money or actionable claim; xxx xxx xxx
Explanation 2.- For the purposes of this clause, transaction in money shall not include any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged".
Charge of service tax.
"Sec.66. There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent of the value of taxable services referred to in sub-clauses (a) ... (to) ... (zzzzw) of clause (105) of section 65 and collected in such manner as may be prescribed.
Provided that the provisions of this section shall not apply with effect from such date as the Central Government may, by notification appoint".
Charge of Service tax on and after Finance Act, 2012.
"Sec.66B. There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed".
Valuation of taxable services for charging service tax.
"Sec.67 (1) - Subject to the provisions of this Chapter, where service tax is charged on any taxable service with reference to its value, then such value shall, -
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.
(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.
(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.
Explanation.- For the purposes of this section, -
(a) "consideration" includes any amount that is payable for the taxable service provided or to be provided;
(c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called "Suspense account" or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise".
Service Tax Rules, 1994
"Rule 6(7B): The person liable to pay service tax in relation to purchase or sale of foreign currency, including money changing, shall have the option to pay an amount calculated at the following rate towards discharge of his service tax liability instead of paying service tax at the rate specified in section 66B of Chapter V of the Act, namely:
(a) 0.12 per cent of the gross amount of currency exchanged for an amount upto rupees 100,000, subject to the minimum amount of rupees 30;
(b) rupees 120 and 0.06 per cent of the gross amount of currency exchanged for an amount of rupees exceeding rupees 100,000 and upto rupees 10,00,000; and
(c) rupees 660 and 0.012 per cent of the gross amount of currency exchanged for an amount of rupees exceeding 10,00,000, subject to maximum amount of rupees 6000:
Provided that the person providing the service shall exercise such option for a financial year and such option shall not be withdrawn during the remaining part of that financial year."
Service Tax (Determination of Value) Rules, 2006:
"Rule 2B. Subject to the provisions of section 67, the value of taxable service provided for the services so far as it pertains to purchase or sale of foreign currency, including money changing, shall be determined by the service provider in the following manner:-
For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI) reference rate for that currency at that time, multiplied by the total units of currency.
Example I: US$1000 are sold by a customer at the rate of Rupees 45 per US$.
RBI reference rate for US$ is Rupees 45.50 for that day.
The taxable value shall be Rupees 500.
Example II: INR70000 is changed into Great Britain Pound (BGP) and the exchange rate offered is Rupees 70, thereby giving GBP 1000.
RBI reference rate for that day for GBP is Rupees 69.
The taxable value shall be Rupees 1000:
Provided that in case where the RBI reference rate for a currency is not available the value shall be 1% of the gross amount of Indian Rupees provided or received, by the person changing the money:
Provided further that in case where neither of the currencies exchanged is Indian Rupee, the value shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by RBI".
4. The petitioner's contentions are many fold. "Banking and other financial services" referred to in sub-clause (iv) of sub-section (12) of Section 65 is said to be only covering services rendered by establishments commonly termed as "money changers", who operate in the private sector. It is also contended that the exclusion provided from the definition of "service" in sub-section (44) of Section 65B excludes a transaction in money or an actionable claim. To further buttress the said contention, the petitioner relies on Exhibit P1 Circular issued by the Central Board of Excise and Customs, wherein remittances of foreign currencies were specifically excluded. It is further urged that Section 67, which deals with valuation of taxable services for the purpose of service tax, takes in, by sub-clause (i) of sub-section (1), the gross amounts charged by the service provider for any service, the consideration of which is in money. The consideration in money, for the services, is the conversion charges ["commission" and "exchange"] levied by the Bank and cannot be on the whole amount of the foreign remittance as provided in the Rules, especially when the prescription for determination of value by the Rules is specifically made subject, to the provisions of sub-sections (1), (2) and (3), by virtue of sub-section (4) of Section 67. The petitioner's further argument is that if at all the petitioner is found liable, then, by virtue of sub-rule (7B) of Rule 6 of the Service Tax Rules, 1994 [for brevity "Rules of 1994"], which is akin to a provision for compounding, the petitioner should be permitted to pay such amount prescribed therein for the whole of the year and not for each transaction.
5. The argument that sub-clause (iv) of clause (a) of sub-section (12) of Section 65 applies only to private "money changers" is to be rejected at the outset. There is no warrant for such assumption from the words employed in sub-clause (iv). It takes in securities and foreign exchange broking and purchase or sale of foreign currency, including money changing, whether such service be rendered by a private company or one exclusively dealing in money changing operations or a Bank; nationalised or otherwise, who is authorised to carry on such activity. The emphasis is on the service provided and the taxing event is also the service rendered. The provision does not distinguish establishments; nor confine the levy to those establishments exclusively conducting money changing operations. The contention raised, hence, has absolutely no legs to stand and is rejected.
6. The further contention is with respect to exemption provided to activities including transaction in money. Going by Explanation 2 of Section 66B(44), such exemption does not apply to conversion of currency from one form to another. Hence, no exemption can be claimed by the petitioner with respect to the service it receives, in so far as the respondent-Bank converts its foreign remittances to Indian currency. Exhibit P1 Circular also does not apply to the service of conversion of money; which is the subject matter of this dispute. What is specifically dealt with, in the said Circular, is the remittance of foreign currency in India from overseas. The tax levied and challenged herein, is not with respect to such remittances made by the foreign buyer of the petitioner to the respondent-Bank; but the conversion of such foreign currency to Indian rupee. The Circular is of absolutely no assistance to the petitioner, since there is no tax levied or collected with respect to the remittances made by the petitioner's foreign buyer. This Court cannot confuse the remittance with the conversion, since both are distinct events and it is the latter that is the taxable event.
7. The charging section, being Section 66, specifies a levy at the rate of 12% and the taxable event is the service rendered; with the measure, specified in the enactment as the value of such taxable services. The liability falls on the service provider, which the service provider is entitled to recover from the service recipient. The valuation of taxable services, as has been specifically pointed out, has to be determined on the basis of Section 67 as also the prescription made, for such determination; permissible under Section 67 itself.
8. The prescription of such determination of value of taxable services by Rules, is provided in sub-section (4) of Section 67. This power is not in exclusion to that provided in the previous sub-sections; but is subject to the provisions of sub-sections (1), (2) and (3). We are not concerned with sub-sections (2) or (3). The specific contention raised by the petitioner is that, sub-clause (i) of sub-section (1) provides the valuation of taxable services, to be the "gross amounts" charged by the service provider. When the provision of service is for consideration in money, there can be no further prescription, since then, the delegated authority would be acting in excess of the powers delegated, which has to be subject to sub-section (1).
9. When there is a service provided; consideration of which is in money, the tax levied can be only on such "gross amounts" charged by the service provider and there cannot be any other value determination; is the contention. It is to be immediately noticed that the statute itself provides for adoption of a measure; where there is some consideration taken by the service provider other than in terms of money and provides for value determination as prescribed in the rules.
10. Sub-clause (i) of Section 67(1) has to be understood as any provision of service for a consideration in money, being taxed on the value of the gross amount charged by the service provider. By sub-clause (ii), where the provision of service is for a consideration not wholly or partly in money, then the amount in money equivalent to such consideration has to be determined. Such determination would include the amount charged by the service provider in terms of money and that otherwise enuring to the service provider; the latter determined in terms of money; as provided in the rules. Further, by sub-clause (iii), when the provision of service is for a consideration which is not ascertainable, then also the benefit derived by the service provider; has to be determined in terms of money; as per the rules.
11. Hence, sub-clauses (i), (ii) and (iii) are not in derogation of or exclusion to each other; but are mutually complementary, depending upon the manner in which consideration for provision of service is accepted by the service provider, from the recipient. In terms of money or in any other form and when it is not ascertainable; to be determined in terms of money. The different sub-clauses also speak of such ascertainment and how the value has to be determined, providing sufficient guidelines to the rule making authority.
12. The petitioner is correct, in so far as accepting that the petitioner is liable to the tax on the charges ["commission" and "exchange"] levied by the respondent-Bank; which levy is made on the gross amount charged by the service provider by sub-clause (i) of Section 67(1) and that consideration is in terms of money. But such levy and collection, does not prevent the taxation authorities from looking into whether there is any other ostensible consideration for the service provided, which is not in terms of money or which is not ascertainable, in which event tax will have to be levied as prescribed in the rules.
13. The prescription directed by sub-section (4) of Section 67 has been made by the Rules, as extracted herein above. With respect to the purchase or sale of foreign currency, including money changing, Rule 2B of Service Tax (Determination of Value) Rules, 2006 [for brevity "Rules of 2006"] provides for determination; by clear illustration. We are, in the present case, only concerned with the conversion of foreign currency into Indian rupee and, hence, this Court would confine the illustration to such activity alone, as indicated in Rule 2B. When such conversion is made, from the foreign currency to Indian rupee, the difference in the selling rate and the Reserve Bank of India [RBI] reference rate, for that currency, is multiplied by the total unit of foreign currency and that would be the value of taxable service; as per the illustration. At the point of time when the RBI reference rate for US Dollar is Rs.45.50; if a customer sells 1000 US Dollars at the rate of Rs.45 per US Dollar, the value of taxable service would include Rs.500 [0.50 paise x 1000], which consideration is determined as prescribed in the Rules.
14. More elaborately, herein, the Bank is the purchaser and the petitioner; the seller. The Bank purchases the foreign currency sold by the petitioner and converts it into Indian rupee and the Indian Rupee is credited to the petitioner. The RBI reference rate being Rs.45.50 per US Dollar, that is the selling rate of US Dollar at that particular point of time. When the Bank purchases such foreign currency at a lower rate, i.e., at Rs.45 per US Dollar, the ostensible consideration the Bank receives is 50 paise per US Dollar. The petitioner also has a contention that this amount also would be in terms of money and so long as it is not specifically charged by the Bank, that would go beyond the prescription of 'gross amounts' in the statute. However, it is to be specifically noticed that the Bank, at that point of time, does not receive such consideration in terms of money. The Bank could purchase foreign currency as permissible under the various enactments and as regulated by the RBI and sell it immediately or later when the prices may go up or fall. That, however, is a matter to be left to a prudent Banker to decide.
15. When the selling rate is 50 paise higher, per US Dollar, the Bank having purchased it at a lower amount and such consideration having not crystallised in terms of money; is not ascertainable as the "gross amount" charged. It is this unascertainable component which the statute permits, to be ascertained in terms of money, by sub-section (4) of section 67; to be prescribed by the Rules and which has been done by Rule 2B of the Rules of 2006. It is to be specifically noticed that the Rules do not levy a tax on any higher amount received by the Bank when selling such foreign currency purchased; at a higher price; at a later point. Nor is the liability effaced if the Bank suffers a loss, in selling it for a lesser price on a later date. The valuation of service is done, as on the date of sale/purchase and with reference to the RBI reference rate, which necessarily presumes that none involved in "money changing" would purchase a particular foreign currency, at a higher rate than the RBI reference rate, prescribed for the subject foreign currency.
16. The petitioner's contention, hence, with respect to the tax being levied on the entire remittances has to be negatived. The entire remittance is taken, only for the purposes of valuation and that too the units of currency alone and the tax is levied only on that component, which the Bank stands to gain by purchasing the currency at a lower rate than the RBI reference rate. As per the illustration, 50 paise per US Dollar is the ostensible consideration received by the Bank for each dollar conversion and when 1000 Dollars are converted, the taxable value would be Rs.500; 0,50 paise for each US Dollar. The petitioner's contention on that count fails, since the prescription of the measure in the rules as sanctioned by the statute, is perfectly in consonance with the statutory provisions.
17. The last contention is based on sub-rule (7B) of Rule 6 of the Rules of 1994, which provides for an option to pay service tax, in relation to the services provided on purchase or sale of foreign currency, including money changing. The petitioner's contention is that sub-rule (7B) has to be applied to the petitioner, taking into account, the total transactions in an year and if the petitioner's total transaction exceeds Rupees Ten lakhs, the maximum amount that could be levied on exercise of such option is only an amount of Rs.6,000/-, as provide
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d in sub-clause (c) of sub-rule (7B) of Rule 6. 18. The said argument essentially goes against the concept of taxable event, on which the charge is made. The taxable event being the service provided, the determination of valuation has to be made on the service provided and no clubbing together of the services in an year is provided for in the enactment. Sub-rule (7B) postulates the levy on such option being exercised, to each of the taxable events in an year; being the service provided. The option, hence, exercised can only be for each of the transactions in an year and not on the total amount of Indian currency converted from foreign currency in an year. The rule itself provides for different rates on "the gross amount of currency exchanged", on a maximum of the converted currency; further emphasising such levy to be on each transaction. The contention raised by the petitioner that such option is to be exercised and made applicable for all the transactions made in a whole year is belied by the proviso itself, which would be redundant, if the contention of the petitioner is accepted. If such clubbing were provided, there was absolutely no requirement for the proviso to sub-rule (7B), which stipulates that on exercising an option, for a financial year, such option shall not be withdrawn during the remaining part of that financial year. 19. This Court does not find any illegality in the levy of 'service tax' made and collected by the respondent-Bank on the services provided, of the conversion of foreign currency, to the petitioner. When the foreign currency is entitled to an exchange rate, in the market, as notified by the RBI, and a 'money changer' including a Bank involved in such activity purchases that foreign currency at a lower rate, then that difference is the ostensible consideration the service provider derives, which is not in terms of money but still determinable on its money equivalent. Whether it is actually received or not in terms of money; the rules prescribe a value determination on that consideration, to be expressed in terms of money, for the purpose of levy of service tax. No challenge on such determination can be sustained and the levy made is perfectly in consonance with the statute and the rules. The writ petition, hence, stands dismissed. No costs.