TMI Blog2022 (2) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... which is taxable to service tax and for the period after October 2008, the appellants have collected risk interest / interest on gold loan over and above the prescribed rate of 18% as per RBI. For the period prior to October 2008, it is the contention of the appellant that in view of the restrictions, imposed by the Kerala Government, that no money lender will charge interest over and above 2% than the interest charged by commercial banks, they have shown a portion of the interest as incidental charges. However, after October 2008, the same is referred to and accounted as risk interest / interest on gold loans. As long as the consideration received for advancement of loans is interest in whatever manner it is accounted for and at whatever rate it is collected, the same is not chargeable to service tax. Also the learned Commissioner vide order dated 6.7.2018 (Revenue appeal No.ST/21862/2018) has rightly concluded that the demand of service tax on interest of gold loans is not sustainable. The demand on account of interest is set aside irrespective of their nomenclature i.e., incidental charges/risk interest/interest on gold loan. Whether Token Charges and Postage Charges coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they have placed relevant challans on record. The only way to resolve the issue is to send it back for the purpose of verification. Therefore, the case remanded to the adjudicating authority for the limited purpose of verifying the claim of the appellant that they have discharged the liability of service tax in respect of air travel agent / rail travel agent / travel agent services and in respect of commission on insurance. Appeal allowed in part and part matter on remand. - Service Tax Appeal No. 20751-20753 of 2015, Service Tax Appeal No. 21248 of 2016, 21818 of 2016, 21605 of 2018, 21862 of 2018 - Final Order Nos. 20012-20018 / 2022 - Dated:- 1-2-2022 - SHRI P ANJANI KUMAR, TECHNICAL MEMBER AND SHRI P DINESHA, JUDICIAL MEMBER Shri M.S. Nagaraja, Advocate for the Appellant. Shri P. Rama Holla, Superintendent, Authorised Representative for the Respondent ORDER The appellants, M/s. Kosamattam Finance Pvt. Ltd. are Non-Banking Financial Company (NBFC), are engaged in the business of lending money against security of gold/ornaments; the appellants collect interest on the loans advanced; they collect token charges at the rate of ₹ 5/₹ 10 as r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28350 7 Department Appeal No ST/21862/2018-DB Apr-15 to Mar-16 109925337 Total 382344205 Appeal at Sl.No.7 has been filed by the Revenue against dropping of the demand by Commissioner on the risk interest portion. 2. Shri M. S. Nagaraja, learned counsel appearing for the appellant submits that the following issues require consideration in the impugned appeals. (i) Whether the Interest charged from the customers above 18% per annum initially recorded in internal records under the head Incidental Charges till September 2008 and as Risk Interest from October 2008 and from 2013-14 the entire amount of interest as Interest on Gold Loan is liable to Service Tax; (ii) Whether Token Charges and Postage Charges collected as reimbursement of expenses incurred from the customers are an additional consideration for the loans and advances under the Banking and other Financial Services attracting levy of service tax; (iii) Whether the activity of the appellants as representative/sub- representative of the MTSOs to the bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and nomenclature of a particular document or activity is not conclusive. (i) Superpoly Fabriks Ltd vs. CCE: 2008 (10) STR 545 (SC) (ii) State of AP vs. Kone Elevators: 2005 (181) ELT 156 (SC) (iii) CCE vs. Samarth Sevabhava Trust: 2016 (41) STR 806 (Bom) 3.1 Learned counsel further submits that RBI has issued prudential norms income recognition, asset classification and provisions pertaining to advances to all commercial banks and NBFC; vide Circular 21.04.048/2006- 2007 provides that: 3.4 Interest Application There is no objection to the Banks using their own discretion in debiting interest to an NPA account taking the same to Interest Suspense Account or maintaining only a record of such interest in proforma accounts. He submits that from the above it is clear that RBI has no objection to the accounting nomenclature used for interest collected on the loans in the Books of Accounts. He further submits that RBI vide Circular dated 2.1.2009 has directed the Boards of each NBFCs to adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium etc., and determine the rate of interest to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nental Consultants and Technocrats Pvt Limited: 2018 (10) GSTL 401 (SC) held that reimbursable expenses are not liable to be included for the purposes of calculation of service tax. He relies upon the following cases also: (i) State Bank of India Vs CCE, Nasik: 2015-TIOL-1182-CE-Mumbai (ii) Link Intime India Private Ltd Vs CCE, Thane I: 2015 (38) STR 705 (T-Mum) (iii) Plantech Consultants Pvt Ltd Vs CCE, Pune: 2016 (41) STR 850 (T Mum) 5. On the issue of money transfer service, learned counsel for the appellant submits that Revenue refers to the agreement dated 7.3.2007 with M/s. Walls Street Finance Ltd., Bombay to act as sub-representative for the purpose of money transfer service provided by M/s. Western Union; the show-cause notice allege that MTSO service falls under clauses (ii) and (vi) of Section 65(19) read with Section 65(105)(zzb) of the Finance Act, 1994. Learned counsel submits that the customers transferring money earned in foreign exchange outside India to a beneficiary in India approach any of the officers of M/s. Western Union abroad and remit the same. M/s. Western Union through M/s. Wall Street Finance Ltd., Bombay arranges to remit the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Corporation vs. CCE, Mumbai: 2015 (318) ELT 15 (SC) (ii) Jaiprakash Industries Ltd vs. CCE, Chandigarh: 2002 (146) ELT 481 (SC) (iii) Larsen Toubro Ltd vs. CCE, Pune: 2007 (211) ELT 513 (SC) (iv) Padmini Products vs. Collector of Central Excise: 1989 (43) ELT 195 (SC) (v) Nizam Sugar Factory vs. CCE: 2006 (197) ELT 465 (SC) (vi) ECE Industries Ltd vs. CCE, New Delhi: 2004 (164) ELT 236 (SC) (vii) L T Ltd vs. CCE, Pune II: 2007 (211) ELT 513 (SC) 7. Shri P. R. Holla, Authorised Representative (AR) on behalf of the Revenue submits that the findings in all Order-in-Originals except (departmental appeal No.ST/21862/2018) are well reasoned and are reiterated; in respect of department appeal, he reiterates the grounds of appeal. He submits that only after the department initiated the action, the appellants have changed the nomenclature from incidental charges to risk interest as per Head Office Circular dated 2.9.2006; further vide circular 8.2.2014, the appellants have changed the nomenclature to interest on gold loan . He submits that interest can be accounted under the Head Interest only and therefore, amounts collected over and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on gold loans. The appellant submits a Circular dated 31.3.2008 issued by their Head Office to their Branches. We find that it was clarified in the said Circular that: Till recently, we were classifying interest received and receivable on gold loans under two heads, viz., up to 18% under Interest on GLs and the remaining under Incidental Charges on GL. Token charges of ₹ 5/- per loan were also collected for all GLs at the time of their closure. This was also accounted under Incidental Charges on GL. But the Central Excise Department is of the view that the interest amount accounted under incidental charges can be treated as charges other than interest and accordingly, service tax @ 12.36% is to be paid on the amount outstanding under incidental charges on GS account. We have categorically explained to the Central Excise Department the actual position that the amount under incidental charges consist of mainly the interest collected above 18% and the remaining small portion token charges, and the token charge portion alone attracts service tax. we have furnished them detailed statement showing the spilt up of interest portion and token charges accounted under incidental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es without any condition or limit on the rate of interest is excluded from the levy of service tax. During the period post- October 2008, Revenue seeks to take the plea that interest charged over and above 18% is a consideration towards the service and therefore, exigible to service tax. We find it difficult to buy this argument. We find that fixation of rate of interest is not the work of service tax officers and thus, it is beyond the scope of their activity. It is for the RBI to fix the interest rates and regulate the banking and non-banking financial institutions and to take action required, if any, for violations. Just because the appellants are collecting an interest over and above 18%, the said remuneration does not come under the ambit of service tax. It is demonstrated by the learned counsel for the appellant that RBI has given liberty to the NBFCs to fix the interest rates taking into account the various factors. Therefore, we are of the considered opinion that as long as the consideration received for advancement of loans is interest in whatever manner it is accounted for and at whatever rate it is collected, the same is not chargeable to service tax in view of the legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the instant case inasmuch as the appellants are not the direct agents of M/s. Western Union. The appellants are in contract with M/s. Wall Street Finance Ltd., Bombay. The service rendered by the appellants is towards M/s. Wall Street Finance Ltd. and not to M/s. Western Union. The immediate service beneficiary of the service rendered by the appellants is M/s. Wall Steet Finance Ltd. and not the person who sends money from overseas places. It is not disputed that the nature of the service rendered is to be understood from the tenor of the contract. The contract is between two Indian entities. In case of default of transfer of money, the liability rests on M/s. Western Union and not on the Indian entities. It will be a too much long drawn argument to say that the appellants are rendering service to M/s. Wall Street Finance Ltd. Bombay who in turn are rendering service to M/s. Western Union, who render the service to the ultimate customer who sends money from abroad and therefore, the beneficiary of the service rendered by the appellants is abroad. We are of the considered opinion that such stretching of the argument is not acceptable. In the course of transboundary transactions, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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