2013 (4) TMI 240 - AT - Service Tax

Levy of service tax on interest charged by credit card company for late payment of dues - Credit Card, Debit Card, Charge Card or other payment card service - valuation - Held that - Agreeing with the point made by the assessee that bank s customers holding credit cards purchase goods from shops and the bank pays to the shop keeper on their behalf. Till the customers pay up the money to the bank, they are debtors and they stand in the shoes of borrowers. If that be the case, the amount transacted is a loan and interest must accrue to the bank in the event of delay in repayment thereof. In this scenario, the legal provisions cited by assessee become relevant. During the period of dispute, interest on loans was in the excluded category and was not to be included in the gross value charged by the bank for rendering credit card services . The appellant having made out a prima facie case is therefore, entitled to waiver and stay.

Summary

Issues:
Waiver of pre-deposit and stay of recovery in respect of Service tax and Education Cesses totaling to Rs. 1,14,24,247 demanded for the period from April, 2005 to March, 2010.

Analysis:

1. Legal Provisions and Background:
The appellant filed an application seeking waiver of pre-deposit and stay of recovery for a demand of Service tax and Education Cesses. The demand pertained to payments collected by the bank from customers for credit card services during the period from April 2005 to March 2010. The issue revolved around whether the interest accrued to the bank on delayed payments by customers should be included in the taxable value of the credit card service. The appellant argued that the interest should be excluded based on amendments to Section 67 of the Finance Act, 1994, which excluded "interest on loans" from taxable value. The appellant contended that the interest in question was essentially "interest on loans."

2. Interpretation and Decision:
After considering the submissions, the Tribunal agreed with the appellant's argument. It was noted that customers holding credit cards essentially received a loan from the bank when making purchases, and interest would accrue to the bank in case of delayed repayment. Therefore, the interest on delayed payments should be treated as "interest on loans" and excluded from the taxable value of credit card services. The Tribunal found that during the period of dispute, "interest on loans" was in the excluded category, supporting the appellant's position.

3. Grant of Waiver and Stay:
The Tribunal concluded that the appellant had made out a prima facie case and was entitled to waiver and stay. As a result, the application seeking waiver of pre-deposit and stay of recovery in respect of the adjudged dues was allowed, providing relief to the appellant.

In summary, the judgment by the Appellate Tribunal CESTAT, Bangalore dealt with the exclusion of interest accrued on delayed payments by customers from the taxable value of credit card services. The Tribunal interpreted relevant legal provisions and determined that the interest should be treated as "interest on loans," aligning with the exclusion under Section 67 of the Finance Act, 1994. Consequently, the appellant was granted waiver and stay in respect of the demanded dues.