2014 (9) TMI 820 - AT - Service Tax

Levy of service tax on bill discounting facility - collection of interest, against bill discounting facility - cenvat credit on common input services used in providing both taxable and exempted services - Whether service tax is payable on the value of interest received on bill discounting facility extended by the Appellant to its Customers - Whether the amount of CENVAT credit reversed being attributable to the input service used in or in relation to the provision of exempted service, under Rule 6(3A) of the CENVAT Credit Rules,2004, is correct or otherwise - Held that - Analysing the meaning of lending , loan , bill discounting , as cited above, and taking into consideration the arguments advanced by both sides, we are of the opinion that even though under the banker s domain and practice, discounting of bills might be a form of advancing money to the customers and akin to some or most of the characteristics of a loan , but under the Finance Act, the service of lending & bill discounting have been considered as separate services, placed under the umbrella of taxable service of banking and financial services ; accordingly, these service for the purpose of service tax should be treated differently. The interest received in providing the bill discounting facility cannot be excluded in computing the value of taxable service treating it as loan under Section 67 of the Finance Act, 1994 for the period prior to 18.04.2006 and under Rule 6(2) of the Service Tax (Determination of Value) Rules, 2006 Scope of Exemption Notification No.29/2004-ST dated 22.09.2004 - whether the exemption to the value equivalent to interest, is limited only in relation to the services of overdraft facility & cash credit facility and not applicable to discounting of bills; and the value equivalent to discounts only is exempted for rendering the service of bill discounting facility. - Held that - it is the value of interest or discount, in connection with providing the services overdraft facility, cash credit facility, or bill discounting facility etc. would be exempted from service tax under Sec.66 of the Finance Act,1994. - it has been informed that no demand has been issued to other banks for rendering similar services. We also find that in the new negative list regime introduced w.e.f 01.07.2012, there is no scope for any ambiguity and call for interpretation as the position has been made clear in the respective provision 66D of the Finance Act,1994. The confirmation of demand on the value of interest received in rendering bill discounting facility and imposition of penalty by the Ld. Adjudicating authority, deserves to be set aside - Decided in favor of assessee. Reversal of cenvat credit - common input services - Held that - A simple reading of the definition of exempted service reveals that it also includes services that are exempt under Section 66 of the Finance Act, 1994. In the present case, interest on overdraft facility and cash credit facility are exempted from service tax under Section 66 of the Finance Act,1944 by virtue of Notification No.29/2004 ST dt.22.09.2004. Therefore, these services would definitely come under the scope of the definition of exempted service , hence, the argument that to attract Rule 6(3) of the CENVAT Credit Rules, 2004, the entire taxable service i.e. banking and financial services should be exempted and not few services mentioned under the categories of clause (ix) of the said Banking and Financial Services, is untenable. - Decided against the assessee. Extended period of limitation - Held that - the Appellant be allowed a fair chance to present these evidences and be subjected scrutiny/verification by the department. Accordingly, we set aside the confirmation of demand of CENVAT Credit and imposition of penalty and remand the case for redetermination of the liability, if any, only on the issue of limitation - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Liability of service tax on interest received from bill discounting facility.
2. Correctness of CENVAT credit reversal under Rule 6(3A) of the CENVAT Credit Rules, 2004.

Detailed Analysis:

1. Liability of Service Tax on Interest from Bill Discounting Facility:

The appellant, a Public Sector Bank, contested the liability of service tax on interest collected from bill discounting services. The central argument was that bill discounting should be treated as a loan, and thus, interest on it should be excluded from the taxable value as per Section 67 of the Finance Act, 1994, and Rule 6(2) of the Service Tax (Determination of Value) Rules, 2006. The appellant referenced their balance sheet and profit & loss account, which treat bill discounting similarly to loans, and cited various legal provisions and judgments to support their stance.

However, the tribunal noted that the Finance Act, 1994, distinctly categorizes 'lending' and 'bill discounting facility' under 'Banking and Financial Services,' implying separate treatment for tax purposes. The tribunal concluded that interest from bill discounting cannot be excluded from the taxable value as it is not considered a loan under the relevant tax provisions.

2. Exemption under Notification No. 29/2004-ST:

The appellant argued that interest received from bill discounting is exempt from service tax under Notification No. 29/2004-ST dated 22.09.2004, which exempts the value equivalent to interest on overdraft, cash credit, or discounting of bills from service tax. The tribunal analyzed the notification and judicial interpretations of the phrase 'as the case may be.' It concluded that the exemption applies to interest or discount related to overdraft, cash credit, and bill discounting facilities. Therefore, the interest received from bill discounting is exempt from service tax under the said notification.

3. Correctness of CENVAT Credit Reversal:

The appellant disputed the reversal of CENVAT credit under Rule 6(3A) of the CENVAT Credit Rules, 2004, arguing that interest on overdraft and cash credit facilities should not be considered exempt services for the purpose of credit reversal. The tribunal reviewed the definition of 'exempted service' under Rule 2(e) of the CENVAT Credit Rules, 2004, which includes services exempt from the whole of service tax. Since interest on overdraft and cash credit facilities is exempt under Notification No. 29/2004-ST, these are considered exempted services.

The tribunal upheld the commissioner's approach to include the value of exempted services in computing the CENVAT credit attributable to input services used in providing exempted services. However, the tribunal allowed the appellant an opportunity to present additional evidence regarding the disclosure of facts in their ST-3 returns, remanding the case for redetermination of liability on the issue of limitation.

Conclusion:

The tribunal set aside the demand and penalty related to the interest received from bill discounting facility, recognizing it as exempt under Notification No. 29/2004-ST. The issue of CENVAT credit reversal was remanded for further determination based on additional evidence regarding the disclosure of facts in the appellant's returns.