2019 (1) TMI 724 - AT - Service Tax

CENVAT Credit - input services used in taxable as well as exempt services - Interest charged on account of late payment of brokerage and fee towards depository services - services in the nature of banking and financial service which is exempted from service tax also provided - Rule 6(3) of CCR - Held that - The activity of a banking and financial service concern has been well defined under the RBI Act, Banking Regulation Act and section 65 (12) of the Finance Act, 1994. It is an undisputed fact that the Appellant is not doing any banking or financing or leasing activity. The interest earned has to be from deposit, loans or advances when the activity is of Banking & Other Financial Service . The interest on delayed payment of consideration in the present case i.e. delay in payment of brokerage and fee etc would not ipso facto lead to conclusion that the Appellant is rendering any banking or financial activity. The contention of the revenue that since the Appellant is also registered under the category of Banking and Other Financial service under Service tax and hence interest income is falling under that heading is wrong preposition. The interest arising due to late payment of dues by the clients to the Appellant would not fall under the category of Banking & other Financial service - the activity of the Appellant are not covered under the category of Banking & Financial services. In such case the demand under Rule 6 (3B) towards reversal of 50% of Cenvat Credit on input and input services is also not sustainable - Also as the cenvat credit has been correctly utilized for payment of service tax, hence the demand of service tax is not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of law regarding service tax liability for charging interest on late payments in the context of banking and financial services.

Analysis:
The case involved an appellant registered in service tax under various categories, including stockbroking and renting of immovable property services. They received depository fees and charged interest on late payments from customers. The appellant was issued a show cause notice alleging that they availed cenvat credit and provided services falling under "banking and financial service," which is exempt from service tax. The demands made in the notice were confirmed by the adjudicating authority, leading to penalties imposed on the appellant.

The appellant argued that they were not engaged in banking or financial activities, and the interest charged was for late payment of charges and fees, not for any banking or financial service. They presented legal precedents and circulars to support their contention that the interest income did not fall under the category of banking and financial services. They also argued that the demand for service tax based on alleged non-available cenvat credit was duplicative and time-barred.

The revenue contended that the interest income should be considered under banking and financial services, leading to the reversal of cenvat credit and imposition of penalties. However, the appellate tribunal found that the interest income was not related to banking or financial activities as defined by relevant laws. The tribunal emphasized that the nature of the activity determines the classification of services, and in this case, the interest income arose from stockbroking services, not banking or financial services. The tribunal also noted that the appellant provided evidence supporting the nature of the income, leading to the conclusion that the demands and penalties against the appellant were not sustainable.

In conclusion, the tribunal ruled in favor of the appellant, setting aside the impugned order and allowing the appeal based on the finding that the interest income from late payments did not fall under banking and financial services, making the demands and penalties unsustainable.