2018 (5) TMI 218 - AT - Service Tax

CENVAT credit - taxable as well as exempt services - Rule 6(2) of CCR 2004 - case of Revenue is that since the appellant is providing service of lending wherein the interest is exempted, therefore, they are required to pay 8/6% of the value of such exempted service - N/N. 29/2004 - ST dated 22.9.2004 - Held that - the notification does not exempt the service as whole whereas the service tax is exempted only to the extent of so much of the value of taxable service provided to a customer in relation to overdraft facility, cash credit facility or discounting of bills, bills of exchange or cheques as is equivalent to the amount of interest on such overdraft, cash credit or as the case may be. It is therefore, very clear that the service per se is not exempted, but a part of the taxable value is only exempted - If this be so, then it cannot be said that the service provided by the appellant is exempted. Identical issue decided in the case of M/s Vaidyanath Urban Co-operative Bank Ltd. Versus Commissioner of Central Excise, Aurangabad 2015 (11) TMI 952 - CESTAT MUMBAI , where it was held that the Banking and other Financial Service, which are the output service of the appellant are not fully exempted and accordingly, do not fall under the category of exempt service as defined under Rule 2(e) of the Cenvat Credit Rules, 2004. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant, a Co-operative Bank providing banking and financial services, is liable to pay 8/6% of the value of exempted services due to non-compliance with Rule 6 of the Cenvat Credit Rules, 2004.

Analysis:
The case involved a Co-operative Bank availing cenvat credit on common input services without maintaining separate accounts for dutiable and exempted services. The department contended that since the bank provided exempted lending services, they were required to pay 8/6% of the value of such exempted services as per Rule 6 of the Cenvat Credit Rules, 2004. The adjudicating authority upheld the demand, imposed a penalty, and ordered interest recovery. The appellant challenged this decision.

The appellant argued that their banking and financial services, including lending, were taxable services, with only a portion exempted under Notification No.29/2004-ST. They contended that since the service was otherwise taxable, Rule 6(3) did not apply. They cited similar cases where proceedings were dropped for identically placed banks. The Revenue, however, supported the original decision, relying on a Tribunal judgment.

The Tribunal analyzed the notification and found that it exempted only a part of the taxable service value related to interest on overdraft, cash credit, or discounting of bills. It clarified that the service itself was not fully exempted. Considering the persuasive value of dropped proceedings for similar banks and a relevant Tribunal decision, the Tribunal held that the demand was not sustainable. It set aside the impugned order and allowed the appeal.

In conclusion, the Tribunal ruled in favor of the appellant, stating that the service provided by the Co-operative Bank was not fully exempted, and hence, Rule 6(3)(i) did not apply. The decision highlighted the importance of understanding the scope of exemptions under relevant notifications and provided relief to the appellant based on the interpretation of the law and precedents.