2020 (3) TMI 751 - AT - Service Tax

Levy of service tax - interest income - banking services - safe-keeping of gold in their vaults - profit earned by the appellant which is a difference between the sale price of gold to their customers and purchase price of gold from Union Bank of Switzerland or MKS Finance - whether to be considered as consideration for charging service tax or not? - HELD THAT - The onus was on Revenue to identify the consideration, if any, received by appellant for providing service. Without any consideration there is no service tax payable. We therefore set aside the impugned orders for demand in all the appeals in respect providing Safe Vault Service and allow the appeals in respect of safe vault services. Demand of service tax on interest - providing metal as loan to the customers - The Revenue is of the opinion that only if the loan is in the form of Indian rupee and interest is earned on that, then alone under the provisions of Valuation Rules or Section 66D of Finance Act, 1994 - Held that - interest is not to be treated as part of consideration for determination of service tax. - We do not find any support from any of the provisions of law for such contention by Revenue. There is no provision in the law to hold that interest identified by Valuation Rules or Section 66 is interest only on cash loan. The service tax confirmed on interest earned by the appellant by providing metal as loan is not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant is providing safe vault services to foreign gold suppliers.
2. Whether service tax is payable on the interest received by the appellant.

Analysis:

Issue 1:
The first issue revolves around whether the appellant is providing safe vault services to foreign gold suppliers. The appellant, a banking company engaged in the sale and purchase of gold, imports gold from foreign entities and holds it until a customer is identified. The Revenue alleged that during this period, the ownership of gold remains with the foreign suppliers, implying the provision of safe vault services. Show cause notices were issued, and on adjudication, service tax demands were confirmed. The appellant contended that the profit earned was from Indian customers, not the foreign suppliers, and there was no consideration received for safe vault services. The Tribunal noted that the Revenue failed to identify any consideration received by the appellant for providing such services. As no consideration was established, the demand for service tax on safe vault services was set aside, and the appeals were allowed on this issue.

Issue 2:
The second issue pertains to whether service tax is payable on the interest received by the appellant for providing metal as a loan to customers. The Revenue considered the interest earned on such loans as taxable. The appellant argued that there was no legal basis to treat the interest as taxable, as claimed by the Revenue. The Tribunal observed that the Revenue's contention that interest should only be exempt if earned on cash loans in Indian rupees lacked legal support. There was no provision in the law indicating that interest identified by Valuation Rules or Section 66D was limited to cash loans. Consequently, the Tribunal held that the service tax demand on the interest earned from providing metal as a loan was not sustainable. The demand was set aside, along with interest and penalties, and the appeals were allowed on this issue.

In conclusion, the Tribunal set aside all impugned orders, allowing the appeals on both issues with consequential reliefs as per the law.