2021 (8) TMI 637 - AT - Service Tax

CENVAT Credit - input service exclusively used for providing exempt services - Banking and other Financial Service - Collateral Management charges - levy of service tax on the interest earned by the bank on loans/ advances - HELD THAT - Giving of loans is not a service, rather it is an activity of the Bank in which money in real terms which is akin to goods, is given to borrower. Further, for the reason that interest earned by the Bank on loans is not liable to tax, the show cause notice alleged that giving of loan is an exempt service. Further, the SCN have been issued after more than 32 months from the last date when the return was due from the financial year ending 31.03.2010. The show cause notice is bad for invoking the extended period of limitation. There is no suppression of facts or contumacious conduct on the part of the appellant. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Cenvat credit eligibility on input service 'Collateral Management charges'
2. Allegation of suppression of facts and extended period of limitation
3. Appeal against order-in-original and dismissal by Commissioner (Appeals)
4. Interpretation of giving loans as exempt service and lack of bonafide

Analysis:
1. The appellant, a banking company, was providing services under the category of 'Banking and other Financial Service.' During an audit for the period April 2008 to September 2011, it was discovered that the appellant had wrongly taken cenvat credit on 'Collateral Management charges' as input services. The Revenue contended that such services were exclusively used for providing exempt services, making cenvat credit unavailable as per Cenvat Credit Rules.

2. Allegations of suppression of facts and invoking the extended period of limitation under the proviso to Section 73(1) of the Finance Act were made against the appellant. The show cause notice issued on 23.10.2013 was adjudicated, resulting in a confirmed demand along with a penalty and interest.

3. The appellant appealed the order-in-original, which was upheld by the Commissioner (Appeals). The Commissioner noted a lack of bonafide on the part of the appellant and dismissed the appeal, stating that approaching the Department in case of doubt was necessary to absolve from charges of suppression of facts.

4. The appellant's counsel argued that giving loans is not a service but an activity of the Bank where money is given to borrowers. It was contended that the interest earned on loans not being subject to service tax does not make giving loans an exempt service. The counsel highlighted that the appellant maintained proper books of accounts, filed returns regularly, and there were no allegations of misstatement or suppression of facts. The Tribunal found that loans are not a service, and the show cause notice issued after more than 32 months from the due date of the last return was bad for invoking the extended period of limitation. The Tribunal ruled in favor of the appellant, setting aside the impugned order.

Therefore, the Tribunal allowed the appeal, holding that there was no suppression of facts or contumacious conduct on the part of the appellant. The appellant was entitled to consequential benefits in accordance with the law.