2013 (8) TMI 258 - AT - Service Tax

Non-Banking Finance Company (NBFC) - Interest - Reversal of CENVAT credit - Rule 6(3) and 6(3A) Application of the Formula - Assesse provided Taxable Services as well as Exempted Services - Held that - Assesse had not been able to maintain separate accounts of input services utilized they were required to follow the formula given in rule 6(3A) (c) (ii) of Cenvat Credit Rules, 2004 for final reversal of excess credit taken - Held that - The ratio of J/(J K) works out to 47% as against 13.88% worked by assesse and 95.17% worked out by Revenue. Taxability of Service - A service cannot be at the same time considered as taxable service and exempted service- there was no question of considering the above services as exempted services value of the services was equal to 10% of the interest received on these services and this factor will form part of factor K in the calculation - Rest 90% of the interest which represents the true interest on money deployed will not enter in factor J or K while making the calculation for reversal of credit - only such an approach can be consistent with the rule that interest on loans will not form value of such services. Waiver of Pre-deposit - 45lakhs were ordered to be submitted as pre deposit after such submission rest of the duty to be waived till the final disposal decided partly in favor of assesse.

Summary

Issues:
Calculation of Cenvat credit reversal under Rule 6 of Cenvat Credit Rules 2004 for a Non-Banking Finance Company (NBFC) providing taxable and exempted services, interpretation of factors 'J' and 'K' for interest received from leasing and hypothecation loans, determination of value of services under Rule 6 (2) (iv) of Service Tax (Determination of Value) Rules, 2006, dispute regarding taxability of income from investments and sale of assets, consideration of tax paid on services used for non-service activities, pre-deposit requirement for appeal.

Analysis:
The judgment concerns a dispute regarding the reversal of Cenvat credit by a NBFC for services provided, including taxable and exempted services. The applicant failed to maintain separate accounts for input services used in different activities, leading to the application of a formula under Rule 6 (3A) (c) (ii) of the Cenvat Credit Rules, 2004 for credit reversal. The disagreement primarily revolves around the factors 'J' and 'K', particularly concerning interest received from leasing, hypothecation loans, and investments. The applicant and Revenue differed in their interpretations of whether the interest should be considered part of taxable or exempted services.

The judgment discusses the legal position that only 10% of interest received from leasing and hypothecation loans is taxable, with the rest being exempted. The applicant argued that the entire interest amount should be considered taxable as they pay tax on it, while Revenue contended that the entire interest should be part of exempted services. The Tribunal considered the provisions of Rule 6 (2) (iv) of the Service Tax Rules and Notification 04/2006-ST to determine the value of services accurately.

Furthermore, the judgment addresses the issue of taxability of income from investments and sale of assets, questioning whether these activities constitute services and if tax credit can be claimed for services used in such non-service activities. The Tribunal's preliminary views in a previous case involving the same assessee were considered, emphasizing the distinction between taxable and exempted services based on statutory provisions and the interpretation of relevant rules.

Ultimately, the Tribunal ordered a pre-deposit amount based on the ratio of factors 'J' and 'K', directing the applicant to comply within a specified timeframe. The judgment provided clarity on the factors influencing the Cenvat credit reversal and the application of legal principles to determine the value of services correctly. The decision aimed to ensure compliance with tax regulations while allowing for the appeal process to proceed with a stay on the collection of dues pending the appeal's outcome.