TMI Blog2014 (9) TMI 820X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered as separate services, placed under the umbrella of taxable service of ‘banking and financial services’; accordingly, these service for the purpose of service tax should be treated differently. The interest received in providing the ‘bill discounting facility’ cannot be excluded in computing the value of taxable service treating it as ‘loan’ under Section 67 of the Finance Act, 1994 for the period prior to 18.04.2006 and under Rule 6(2) of the Service Tax (Determination of Value) Rules, 2006 Scope of Exemption Notification No.29/2004-ST dated 22.09.2004 - whether the exemption to the value equivalent to interest, is limited only in relation to the services of overdraft facility & cash credit facility and not applicable to discounting of bills; and the value equivalent to discounts only is exempted for rendering the service of bill discounting facility. - Held that:- it is the value of interest or discount, in connection with providing the services overdraft facility, cash credit facility, or bill discounting facility etc. would be exempted from service tax under Sec.66 of the Finance Act,1994. - it has been informed that no demand has been issued to other banks for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause was notice issued to them on 09.04.2010 alleging short payment of service tax of ₹ 10,62,53,749/-, Education cess of ₹ 21,25,075/- Secondary Higher Education Cess of ₹ 9,10,521/-on account of rendering Bill discounting service during the period from 01.10.2004 to 31.03.2009 under the said category of Banking and Other Finance Services and on account Renting of Immovable period for the period 2007-2008 to 2008-2009 service tax of ₹ 8,94,288/- Education Cess of ₹ 17,886/- Secondary Higher Education Cess of ₹ 8,943/-. Also, it is proposed to recover an amount of ₹ 5,99,88,814/- being not paid in accordance with Rule 6(3A)(c) of CCR,2004 even though cenvat credit was availed on common input services used in providing both taxable and exempted services for the period April 2008 to March 2009. 2.1 It has been alleged that the Appellant had received interest from the customers on bills for which they had provided bill-discounting facility but no service tax on such interest income was paid, though such income was in no way covered under any of the exemption notification. It is also alleged that interest amount charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had accepted the liability of service tax under the category of renting of immovable property , and do not dispute it in the present appeal. However, the appellant dispute the liability of service tax on collection of interest, against bill discounting facility, extended by the appellant to its customers. Also, the recovery of the amount under rule 6(3A) of CCR,2004 is disputed. 4.1 Advancing his argument, on the alleged liability of service tax, on the interest collected by the appellant in extending the Bill discounting facility, the Ld. CA submitted that interest on loans, cannot be considered as a part of taxable value, under clause (viii) of Explanation-1 to section 67 of the Finance act, prior to introduction of Service Tax(Determination of Value) Rules, 2006 and under Rule 6(2) of the said Valuation Rules,2006 after its introduction from 18.04.2006. Elaborating the same, the ld. CA submitted that in terms of the Loan Policy of the Appellant, which is a universal and common policy in the banking industries, credits to various parties are made available in the form of fund-based facilities like overdraft, cash credit, demand loan, bill purchase/discounting et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B under the Head, Income, the first item represents the interest and discount. He has further submitted that no bank in India is permitted to deviate from the aforesaid procedure. Thus, it is his submission that the fund advanced under bill discounting, is nothing but advance given by the bank and interest earned for such bill-discounting is also nothing but interest on loan. 4.4 Referring to the relevant provisions of the Finance Act, 1994, the ld. CA submitted that Explanation-I to Section 67 of the Finance Act, 1994 specifically excludes interest on loan for the purpose of determination of value of the taxable service also. The CBEC in its Circular No.80/10/2004-ST dated 17.09.2004, clarified that the interest amount would remain excluded from the purview of service tax. He submitted that even Rule 6(2)(iv) of the Service Tax (Determination of Value) Rules, 2006 specifically excludes interest on loan for the purpose of determination of value of taxable service. He has further submitted that Notification No.29/2004-ST dated 22.09.2004 exempts interest on overdraft, cash credit and bill discounting from the service tax leviable under Section 66 of the Finance Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. CA further submitted that as per the definition of Exempted Services provided at Rule 2(e) of the CENVAT Credit Rules,2004, it is clear that a service would be treated as exempted services only if the same is exempt from the whole of service tax leviable thereon, and not in a situation when a part of the value had been made exempt under any Notification. He, further, submits that in the course of providing taxable service under the category of Banking and Other Financial Services in the form of providing overdraft facility and cash credit facility, the Appellant received various amounts such as, Loan Processing Fees, Documentation Charges for Hypothecation of Assets, maintenance of Accounts, Limit renewal Charges and Interest for allowing the use of Bank s Fund. It is not that the entire consideration for providing overdraft facility and cash credit facility had been made exempt, rather only a part of it has been exempt. The Appellant had been discharging service tax liability on all the considerations being received for providing overdraft facility and cash credit facility except for interest on such facility. Therefore, while making computation for reversal of CENVAT Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the chit fund, a category of Banking and Financial Services , are also liable to service tax to the extent of 70% of the value of service exempted under Notification No.01/06-ST dated 01.03.2006. Similarly, under Notification No.19/06-ST dated 07.07.2009, inter-banking transaction of purchase and sale of foreign currency are fully exempt from the service tax, but interest on inter-banking loan is not exempt from service tax under this Notification or under Notification No.29/04-ST or by another notification. As per Rule 6(2)(iv) of the Service Tax (Determination of Service Tax) Rules, 2006, interest on loan is not included in the value of any taxable service. However, this is subject to Section 67 of the Finance Act, 1994, as per which where the provision of services is for a consideration in money, the service tax has to be charged on the gross money charged by the service provider. In this case, interest itself is the consideration for the services for providing loans, advances etc. and hence, interest cannot be excluded from the value of taxable service. Further, he has submitted that under the present Negative List of Services in Sl. No.(n) extending deposits on loans or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er CENVAT Credit attributable to exempted services had been correctly computed and paid back by the Appellant. He has submitted that this argument of the Appellant is fallacious and as the Appellant does not maintain separate accounts for input services used for providing taxable and exempted services and hence, themselves opted for availing credit in terms of Rule 6(3)(ii) of CCR,04. He has submitted that Rule 6(3A) provided a methodology and formula for availing/paying back credit already availed. The Department finds that the formula has been wrongly applied by the Appellant in omitting the interest on cash credit and overdraft(exempted under Notification No.29/2004-ST). 6. Heard both sides at length and perused the records. The issues required to be determined in the present Appeal are as follows:- (i) Whether service tax is payable on the value of interest received on bill discounting facility extended by the Appellant to its Customers; and (ii) Whether the amount of CENVAT credit reversed being attributable to the input service used in or in relation to the provision of exempted service, under Rule 6(3A) of the CENVAT Credit Rules,2004, is corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clause, it is hereby declared that purchase or sale of foreign currency, including money changing includes purchase or sale of foreign currency, whether or not the consideration for such purchase or sale, as the case may be, is specified separately. 8. From the aforesaid definition of Banking and Financial Services , , particularly clause (ix), it is clear that lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money overdraft facility, bill discounting facility , are covered under the scope of the said definition. It is not dispute that the Appellant during the relevant period had provided lending as well as bill discounting facility which fall under the scope of Banking and Financial Services leviable to service tax. 9. A two-fold argument has been advanced by the ld. CA for the Appellant, in resisting the demand of service tax confirmed on the amount of interest received on account of rendering bill discount service. It is contended that discounting of bills is nothing but a loan , and hence the interest charged/collected on bill discounting facility, is accordingly not includible under the scope of value of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SES ON LOAN being borrowed. - DERIVATIVES LOANABLE adj. loanee n. loaner n. - ORIGIN ME: from ON lan, of Gmc origin; rel. to lend. In Black s Law Dictionary loan means: * loan, n. (12c) 1. An act of lending; a grant of something for temporary use Turner gave the laptop as a loan, not a gift . [Cases: Contracts - 194.] 2. A thing lent for the borrower s temporary use; esp., a sum of money lent at interest Hull applied for a car loan . 13. The meaning and scope of bill discounting has been explained in Banking Law and Practice by P.N. Varshney at pp 4.112 as follows:- PURCHASE AND DISCOUNTING OF BILLS The business of purchasing and discounting of bills differs from that of collection of bills. In case of the former a bank credits the amount of the bill to the drawer's account before the realisation of the bill and thus lends him its own funds. The bills purchased and discounted by bank are, therefore, shown in its balance sheet as part of loans and advances. In case of purchase and discounting of bills, the banker credits the customer's account with amount of the bill after deducting his charges or discount. As the demand bills are repayabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e service of lending bill discounting have been considered as separate services, placed under the umbrella of taxable service of banking and financial services ; accordingly, these service for the purpose of service tax should be treated differently. This could be supported by the reasoning that in the event all forms of advancing of money to the customers be intended to be covered under the broad category of lending or loan , then other services like, overdraft facility, cash credit facility, bill discounting facility etc. would not have been mentioned separately under the said clause(ix) of the definition of banking and financial services . Thus, it leads to the inescapable inference that the interest received in providing the bill discounting facility cannot be excluded in computing the value of taxable service treating it as loan under Section 67 of the Finance Act, 1994 for the period prior to 18.04.2006 and under Rule 6(2) of the Service Tax (Determination of Value) Rules, 2006, as the relevant exclusion clause is applicable to interest on loans. 16. The second leg of argument advanced on behalf of the Appellant is that the interest received on rendering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility. However, since discounting of bills is not specifically mentioned in the later part of the notification, therefore, the Revenue contends that the exemption to interest is restricted only to overdraft facility and cash credit facility . 20. To appreciate, the rival contentions, it is quite essential to understand the meaning and use of the expression, as the case may be , in the said notification. According to OXFORD SHORTER DICTIONARY , as the case may be , means; According to the circumstances (used when referring to two or more alternatives): the authorities will decide if they are satisfied or not satisified, as the case may be As per COLLINS DICTIONARY: 1. .according to the circumstances 21.The said expression, as the case may be , has been construed judicially by the Hon ble Supreme Court While interpreting Sec.10(3)(c) of Tamil Nadu Buildings (Lease and Rent Control) Act (18 of 1960), in the case of Shri Balaganesan Metals vs. M.N. Shanmugham Chetty and Others, AIR 1987 SC 1668. The said Sec.10(3) (c ) reads as: Section 10(3)(c):- A landlord who is occupying only a part of a building, whether residential or non-residential, may, notwithstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r discounts relating to aforesaid services are only exempted from the scope of the levy, even though, other services are mentioned under the definition of banking and financial services. Therefore, there is substance in the argument advanced on behalf of the learned special Counsel that interest per se is not exempted from the scope of Levy of service tax. 24. The crucial issue needs to be addressed is: under the said Notification, whether the exemption to the value equivalent to interest, is limited only in relation to the services of overdraft facility cash credit facility and not applicable to discounting of bills; and the value equivalent to discounts only is exempted for rendering the service of bill discounting facility. At the first blush, the said interpretation may sound plausible, however, on a deeper analysis and on applying the meaning of the expression as the case may be , culled out as above, in the present context, the argument that interest earned on over draft facility and cash credit facility only be exempted, and not on bill discounting facility would lead to an incorrect result of the interpretation of the said notification; on the contrary, as per the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside and accordingly we set aside the same. 27. Now, coming to the second issue, we find that while confirming the CENVAT credit amount liable to reversed by the Appellant under Rule 6(3A)(c) of CCR,2004 for not maintaining separate accounts relating to rendering exempted and taxable services, the adjudicating authority has observed that the value attributable to exempted services, is computed on monthly and provisional basis, and at the end of the financial year, the final amount of input service credit attributable to exempted service, is derived as per the method prescribed under Rule 6(3A)(c) of CCR,2004 and the differential amount is recovered/adjusted, accordingly. The Appellant while computing the amount of CENVAT Credit attributable to the exempted services under Rule 6(3A) of CCR, the value of exempted services i.e. interest on cash credit and interest on overdraft facilities, were not considered. It is the contention of the ld. CA for the Appellant that in view of definition, exempted service as prescribed at Rule 2(e) of the CCR,2004, they are not be required to reverse the credit attributable to the services viz. overdraft facility and cash credit facility as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services used in or in relation to manufacture of exempted goods [and their clearance upto the place of removal] or provision of exempted services = (M/N) multiplied by P, where [M] denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, 1[N] denotes total value of [output] and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and 1[P] denotes total CENVAT credit taken on input services during the financial year; 28. On a simple reading of the aforesaid provisions, we do not find force in the submission of the ld. CA for the simple reason that the input services on which CENVAT Credit has been availed, if used in providing exempted services, would not be admissible and for that reason, the Appellant are required to maintain separate accounts, and be permitted to avail Credit on input services which are used in providing dutiable services only. In the event maintenance of separate account is not possible two alternatives are prescribed: (i) to pay 10% of the price of the exempted service; (ii) to reverse the CENVAT Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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