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2018 (9) TMI 312 - AT - Service TaxCENVAT Credit - reversal of proportionate credit - Banking and other Financial Services - input service - Cash Credit/ Over Draft (CC/OD) services - whether the said service is exempt or not? - demand of Interest - time limitation - penalty - Doctrine of pith and substance. Held that - It is quite evident that the actual consideration for the CC/OD services is only higher interest rate and nothing else - Since the entire consideration received against the CC/OD services is in nature of interest, the said services provided by them to their customer are exempt from payment of service tax under Notification No 29/2004-ST dated 22nd September 2004 - Since in respect of these services the entire consideration received from the customer is exempt from payment of service tax these services would definitely be covered by the definition of exempt service as provided by this rule. Doctrine of pith and substance - Held that - Applying the same doctrine for ascertain the true nature of exemption provided by the said notification, the interest is not only the major component but is the only component for providing the said CC/OD services. What so ever minor amounts appellants may have charged towards the administrative fees etc., will not in fact change the nature of exemption provided to the said services - by exempting the value equivalent to interest recovered for providing these services, in fact, in pith and substance exemption has been granted to the services of CC/OD provided by Banking and Financial Companies. Since, the CC/OD services provided by the appellant are exempt from payment of service tax to the extent of interest recovered, the view of Commissioner in including the quantum of interest recovered against the provision of said services for determination of the amount to be reversed in term of Rule 6(3A)(c) of the CENVAT Credit Rules, 2004 cannot be faulted with. Time Limitation - Held that - It is difficult at this stage, to ascertain whether all the facts in relation to these services and all facts including availment of CENVAT credit and its reversal as per rule 6(3A)(c) of the CENVAT Credit Rules, 2004 were disclosed is a question of fact which cannot be ascertained by us at this moment. Commissioner has also not recorded a specific finding in this regard in his order. In the interest of justice, therefore, the appellant be allowed a fair chance to present these evidences and be subjected to scrutiny/verification by the Department - matter remanded for re-determination of issue on limitation. Demand of Interest and penalty - Held that - Since the matter have been remanded for re-determination of issue on limitation, there should be no hesitation in holding that interest under section 75 shall be recoverable on the amounts finally determined - Penalty also needs to be re-determined after determining the issue on limitation. Appeal allowed by way of remand.
Issues Involved:
1. Whether the income earned from Cash Credit, Over Draft, and Bill Discounting would be regarded as exempted service under Rule 2(e) of CENVAT Credit Rules, 2004. 2. Whether the Appellant would be required to reverse the CENVAT credit availed in respect of CC/OD services. 3. Whether the demand is barred by limitation. 4. Whether the interest under section 75 is demandable from the Appellants. 5. Whether the Commissioner was justified in imposing the penalty on Appellants. Issue-wise Detailed Analysis: 1. Whether the income earned from Cash Credit, Over Draft, and Bill Discounting would be regarded as exempted service under Rule 2(e) of CENVAT Credit Rules, 2004: The Tribunal examined the nature of Cash Credit (CC) and Over Draft (OD) facilities and referred to the definition of Banking and Financial Services (BOFS) under section 65(12) of the Finance Act, 1994. It was noted that the services provided under CC/OD are taxable, but Notification No. 29/2004-ST dated September 22, 2004 exempts the interest component of these services from service tax. The Tribunal concluded that since the entire consideration for these services is in the nature of interest, they are exempt from service tax under the said notification. Therefore, these services fall under the definition of exempted services as per Rule 2(e) of the CENVAT Credit Rules, 2004. 2. Whether the Appellant would be required to reverse the CENVAT credit availed in respect of CC/OD services: The Tribunal held that the CC/OD services provided by the appellant are exempt from payment of service tax to the extent of interest recovered. Consequently, the Commissioner’s view to include the quantum of interest recovered against the provision of said services for the determination of the amount to be reversed in terms of Rule 6(3A)(c) of the CENVAT Credit Rules, 2004, was upheld. The Tribunal supported its decision by referring to the Kolkata Bench of Tribunal in the case of UCO Bank Vs Commissioner of Service Tax Kolkata. 3. Whether the demand is barred by limitation: The Tribunal acknowledged the appellant's argument that all relevant facts were disclosed in their ST-3 returns, which could potentially bar the demand by limitation. However, it was noted that the Commissioner had not recorded a specific finding on whether all facts, including the availment of CENVAT credit and its reversal, were disclosed. Therefore, the Tribunal remanded the case for re-determination of the liability after considering the issue of limitation. 4. Whether the interest under section 75 is demandable from the Appellants: Since the Tribunal upheld the order of the Commissioner on the merit of the issue and remanded the matter for re-determination of the issue on limitation, it was held that interest under section 75 shall be recoverable on the amounts finally determined. The interest needs to be re-determined after the issue on limitation is resolved. 5. Whether the Commissioner was justified in imposing the penalty on Appellants: The Tribunal concluded that the penalty also needs to be re-determined after determining the issue on limitation. Since the matter was remanded for re-determination of the issue on limitation, the penalty imposed by the Commissioner was set aside for reconsideration. Conclusion: The appeal was allowed by remand to the adjudicating authority to consider the matter only on the ground of limitation and re-determine the amount of CENVAT Credit to be reversed under Rule 6(3A)(c) along with the interest under Section 75 and penalties to be imposed.
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