CESTAT Rules in Favor of Forex Dealer, Allows Service Tax Valuation Option Under Rule 6(7B)
Introduction
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, has partly allowed the appeal of M/s VKC Credit and Forex Services Pvt. Ltd. (now known as Essel Finance VKC Forex Ltd.), holding that the assessee could not be denied its statutory option to pay Service Tax under Sections 66 and 67 of the Finance Act, 1994 instead of under Rule 6(7B) of the Service Tax Rules.
Factual Background
The appellant, an RBI-authorized foreign exchange dealer registered under the category of “Banking and Other Financial Services,” carried on the business of buying and selling foreign currency, traveller’s cheques, and prepaid travel cards. The dispute pertained to the tax periods between April 2008 and March 2012.
Issues
- Whether the assessee had the option to pay Service Tax under Rule 6(7B) of the Service Tax Rules or under Sections 66 and 67 of the Finance Act, 1994?
- Whether Notification No. 27/2011-ST dated March 31, 2011, expanding exemption under Notification No. 19/2009-ST, would operate prospectively or retrospectively?
Contentions of the Parties
Appellant’s Contention: The appellant contended that Notification No. 27/2011-ST was merely clarificatory and should apply retrospectively. The appellant also argued that under Rule 6(7B) of the Service Tax Rules, it had an option to pay tax at a rate of 0.25% of the gross value of currency exchanged.
Revenue’s Contention: The Revenue contended that the amending Notification of 2011 expressly came into force from April 1, 2011, making it applicable only prospectively. The Revenue also argued that the assessee’s declared Rs. 25 charge per transaction was not reflective of the true consideration.
Reasoning and Analysis
The Division Bench comprising P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) held that the 2011 amendment to Notification No. 19/2009-ST was not merely clarificatory but an expansion of scope to cover a wider class of service providers and recipients, including money changers and foreign banks. The Tribunal also held that the Revenue could not compel the assessee to adopt a valuation method it did not choose.
Decision
The Tribunal partly allowed the appeal, upholding the Commissioner’s findings regarding the prospective nature of Notification No. 27/2011-ST but setting aside the Service Tax demands relating to valuation under Rule 6(7B) and on EEFC transactions.
Implications
The judgment highlights the importance of considering the statutory options available to taxpayers and the need for clear and unambiguous language in notifications and rules.