2018 (6) TMI 197 - AT - Service Tax

Interest or service charge - Interest received for loan given to Subsidiary company for short period - Chargeability to service tax - Banking and Other Financial Service or not - whether the amount shown by the appellant in their balance sheet as interest is actually interest or service charges? - Held that - There is no iota of evidence to discard the amount shown by the appellant is not an interest, merely saying that the amount received by the appellant is service charges for providing deposit to their subsidiary companies is without any evidence and the same cannot be accepted. The amount received by the appellant is interest cannot be said as charges of service provided by them - interest received by the appellant is not chargeable to service tax - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Appeal against demand of service tax confirmed by impugned order.
2. Applicability of service tax on interest received by the appellant.
3. Interpretation of amount shown in balance sheet as interest or service charges.
4. Reliance on CBEC Circular and previous Tribunal decisions.

Analysis:

1. The appellant contested a demand of service tax amounting to &8377;65,49,152/- confirmed against them, along with interest and penalties under the Finance Act, 1994. The demand was raised due to an objection during audit regarding interest received by the appellant for lending money to their subsidiary, categorized as 'Banking and Other Financial Service'.

2. The appellant argued that they do not fall under the definition of 'Banking and Other Financial Institutions', hence not liable for service tax. They maintained that the amount received was interest declared in their balance sheet and assessed by the Income Tax Department as such. Additionally, they referred to compliance with AS18 and CBEC Circular No. 83/1/2006-ST, citing precedents like M/s Thermax Ltd. and M/s Eicher Motors Ltd.

3. The Revenue contended that without documentary evidence or an agreement, the amount in the balance sheet should be treated as service charges, not interest. The Tribunal examined whether the amount declared as interest was indeed interest or service charges, focusing on the nature of the transaction between the appellant and their subsidiary.

4. After analyzing submissions, the Tribunal noted that the appellant's balance sheet clearly indicated the amount as interest, supported by letters presented to authorities. The impugned order lacked evidence to refute the nature of the amount as interest, dismissing it as service charges. Relying on precedents, the Tribunal concluded that interest received by the appellant was not subject to service tax, overturning the demand and penalties imposed.

In conclusion, the Tribunal allowed the appeal, setting aside the impugned order and ruling in favor of the appellant based on the nature of the amount received as interest, not service charges subject to service tax.