2015 (1) TMI 950 - HC - Service Tax

Service tax liability - Banking and other Financial services - Renting of immovable property service - Denial of CENVAT Credit on the input services - NOTIFICATION NO.29/2004-ST, DATED 22.9.2004 - Held that - So far as the claim relating to the charges on discounting of the bills are concerned, the petitioner has shown the same in the separate account and treated the same as interest which is not eligible to service tax. - The meaningful reading of the notification dated 22-9-2004, prima facie, suggests that the discount earned on discounting of the bills, if shown separately, is exempted from the taxable services in equivalence to the amount of interest on the overdraft or the credit. The interpretation made by the authority that exemption on account of interest is limited to the over draft facility and the cash credit and not on the amount while discounting the bills are not free from any doubt. The notification clearly provides for discounting of the bills to be exempted from the purview of the taxable services and, therefore, this Court does not accept the interpretation tried to be given to such notification by the Tribunal. - strong prima facie case has been made out by the petitioner for waiver of the amount pertaining to the service tax on the charges collected by the bank while discounting the bills. So far as the availment of CENVAT credit is concerned, according to the petitioner, the authorities have invoked the amended provision which cannot be made applicable to the case of the petitioner as the period for which the proceeding has been initiated is prior to the date of coming in force of the said amendment. It appears that the authorities have recorded that the petitioner has not maintained a separate account on the input service used in providing taxable service and the exempted services and, therefore, the CENVAT credit which the petitioner bank utilised was wrongly availed of. From the reply also this Court finds that the petitioner bank says that they have not maintained the separate account. This Court, therefore, finds that so far as the CENVAT credit is concerned, the bank has not been able to make out a strong prima facie case. This Court, therefore, grants a total waiver of pre-condition deposit of an amount which relates to the bill discounting charges/interest to the tune of ₹ 11.02 crores are concerned; so far as the sum of ₹ 5.99 crores on account of wrong availment of the CENVAT is concerned, this Court does not find that the petitioner has been able to make out strong prima facie case for full waiver. - Decided partly in favour of assessee.

Summary

Issues involved:
Interpretation of notification exempting interest on discounting of bills from service tax, wrongful availment of CENVAT credit, waiver of service tax on charges collected by the bank, quashing of directive to deposit 50% of duty on taxable services, direction to deposit 50% of duty on CENVAT credit, expeditious disposal of appeal by the Tribunal.

Interpretation of Notification Exempting Interest on Discounting of Bills from Service Tax:
The petitioner argued that the interest component on discounting of bills does not fall under service tax as per sub-rule (2) of Rule VI of the Service Tax (Determination of Value) Rules, 2006. The Department contended that the interest earned on bill discounting can only be exempted if shown separately in an invoice, bill, or challan, as per a specific notification. The Court found that the bank had treated the charges on discounting of bills as interest, exempt from service tax, and disagreed with the Department's interpretation, stating that the notification clearly exempts discounting of bills from taxable services.

Wrongful Availment of CENVAT Credit:
The authorities alleged that the petitioner wrongly availed CENVAT credit due to not maintaining a separate account for input services used in taxable and exempted services. The petitioner argued against invoking an amended provision retroactively, as the proceedings predated the amendment. The Court noted that the bank failed to demonstrate a strong prima facie case for full waiver regarding the CENVAT credit, leading to a waiver only for the service tax on bill discounting charges/interest, not for the wrongful CENVAT credit availment.

Waiver of Service Tax on Charges Collected by the Bank:
The Court found a strong prima facie case for waiving the service tax on charges collected by the bank for bill discounting. It granted a total waiver of the amount related to service tax on bill discounting charges/interest but did not find a strong case for full waiver concerning the wrongful CENVAT credit availment.

Quashing of Directive to Deposit 50% of Duty on Taxable Services:
The Court quashed the portion of the order directing the petitioner to deposit 50% of the duty on taxable services, providing relief to the petitioner in this regard.

Direction to Deposit 50% of Duty on CENVAT Credit and Expedite Tribunal Appeal:
The petitioner was directed to deposit 50% of the duty imposed on the CENVAT credit within a fortnight. The Tribunal was instructed to expedite the appeal process and dispose of it promptly after the deposit, without unnecessary delays, ideally within four weeks from the date of the order.

Conclusion:
The Court disposed of the writ petition without costs, emphasizing that its observations were tentative and would not impact the Tribunal's decision on the appeal's merits.