2019 (3) TMI 976 - AT - Service Tax

Reversal of proportionate credit - Exempt service or not? - lending of loans - Whether the Appellants are required to reverse proportionate Cenvat credit and as to whether interest etc. earned by them from cash credit, overdraft, etc. would be treated as exempted service? - Held that - As per sub- section 4 of section 67 of Finance Act 1994, the value of taxable services has to be determined in terms of Service Tax (Determination of Value) Rules, 2006. As per Rule 6 (2) (iv) the interest on loans has to be excluded from the taxable value - In case of HDFC 2018 (9) TMI 312 - CESTAT MUMBAI the Tribunal Mumbai has gone further ahead and have put to rest the argument that only interest part is exempted and not the other administrative charges and fees etc. are not exempted and thereby the service would not come under the purview of exempted services - the Banks are free to decide the interest after taking into consideration administrative expenses if any - there is no merit in the Appellants argument that interest is to be deducted only for the purpose of calculating the taxable value - the lending of loans on interest as an exempted service. Thus, the services rendered by the Appellants in advancing loans etc. are exempt. Therefore, the amount of interest earned in advancing of loans needs to be taken into consideration while determining the amount to be reversed in term of Rule 6(3A)(c) of the CENVAT Credit Rules, 2004. Levy of service tax - alleged supply of manpower to their subsidiary - Held that - As long as it is not proved that the Appellants have received anything other than the reimbursement of wages, no Service Tax can be levied - demand do not sustain. Cenvat Credit - credit availed on input services availed by them in respect of their branches in J & K - Held that - The Learned Commissioner has not accepted the claim of reversal made by the Appellants only on the ground that the reversal is not made on annual basis and that the Chartered Accountant has not certified the amounts reversed. We find that this argument is not acceptable. In case the reversal was not within time it was free for the Learned Commissioner to charge interest applicable thereof - it is a fit case to remand this matter to the Commissioner for examining the issue once again. Levy of service tax - Directors sitting fees - Held that - The reimbursed expenses are not to be included in the value of the taxable services - this issue also needs to go back to the adjudicating authority for a proper appreciation of the facts of the case and to give allowance in respect of reimbursed expenses to the Appellants. Time limitation - suppression of facts or not? - Held that - We are not inclined to give a carpet ruling that since the Appellants are public sector undertaking suppression of facts cannot be alleged. The issue depends on case to case basis. Therefore we find that this issue also needs to be looked into again by the adjudicating authority. Penalty - Held that - Looking into the fact that the Appellants are public sector undertaking and that most of the issues involved were interpretative in nature we find that imposition of 100% penalty is certainly not warranted. The amounts being paid before the issue of Show Cause Notice itself, penalties can be restricted to 25%. Appeal allowed in part and part matter on remand.

Issues Involved:
1. Issuance of corrigendum by the commissioner limiting demands to a period of 5 years.
2. Treatment of income earned from cash credit, overdraft, and bill discounting as exempted services under Rule 2(e) of CENVAT Credit Rules, 2004.
3. Liability to pay service tax on manpower deputed to the subsidiary (METCO).
4. Availment of inadmissible credit for input services availed for J&K branches.
5. Requirement to pay service tax on directors’ sitting fees.
6. Imposition of penalties where payments were made along with interest before the issuance of the show cause notice.

Detailed Analysis:

1. Issuance of Corrigendum by the Commissioner:
The commissioner issued a corrigendum restricting the demand to a period of 5 years, which was challenged. The tribunal found that the commissioner’s action was merely an arithmetical correction and did not violate any provisions of law. The matter was remanded back to the adjudicating authority to rework the demand, considering the period of 5 years only and to independently analyze the facts to determine the sufficiency of reasons for invoking the extended period.

2. Treatment of Income as Exempted Services:
The tribunal examined whether the income earned from cash credit, overdraft, and bill discounting should be regarded as exempted services. It was concluded that the interest earned from advancing loans is to be considered as exempted services under Rule 6(3A)(c) of the CENVAT Credit Rules, 2004. The tribunal upheld the commissioner’s order, aligning with previous decisions in UCO Bank and HDFC Bank cases, confirming that the interest part is exempted and must be considered for proportionate reversal of CENVAT credit.

3. Liability to Pay Service Tax on Manpower Deputed to METCO:
The tribunal referred to its previous decision in the Axis Bank case, where it was held that deputing employees to a subsidiary and getting reimbursed for their salaries does not attract service tax. The tribunal allowed the appeal, confirming that no service tax is leviable on the manpower deputed to METCO as long as only reimbursement of wages was received.

4. Availment of Inadmissible Credit for J&K Branches:
The tribunal found that the commissioner’s rejection of the appellant’s claim of reversal of CENVAT credit for J&K branches was not acceptable. The matter was remanded back to the commissioner for re-examination, emphasizing that if the reversal was not timely, interest could be charged.

5. Requirement to Pay Service Tax on Directors’ Sitting Fees:
The tribunal noted that the commissioner had confirmed the demand not only on the sitting fees but also on reimbursed expenses, which was incorrect. The matter was remanded back for proper appreciation of the facts, instructing that reimbursed expenses should not be included in the taxable value, in line with the Supreme Court decision in Intercontinental Consultants & Technocrat Pvt. Ltd.

6. Imposition of Penalties:
The tribunal observed that the appellants had reversed the amounts along with interest before the issuance of the show cause notice. Considering the interpretative nature of the issues and the appellant being a public sector undertaking, the tribunal found that imposing a 100% penalty was unwarranted. The penalties were restricted to 25%.

Conclusion:
The tribunal upheld the commissioner’s order regarding the reversal of credit attributable to exempted services like lending. It ruled that no service tax is payable on manpower deputed to METCO and that reimbursed expenses should not be included in the taxable value for directors’ sitting fees. The tribunal remanded the matter back to the adjudicating authority for re-examination of the reversal of CENVAT credit for J&K branches and reworking the demand considering the period of 5 years. Penalties were restricted to 25% for amounts paid before the issuance of the show cause notice. The appeals were disposed of accordingly.

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