Custom, Excise & Service Tax Tribunal
M/S. Uco Bank, Kolkata vs Commissioner Of Service Tax, Kolkata on 25 September, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
EAST ZONAL BENCH: KOLKATA
SERVICETAX APPEAL NO.ST/A/74/2012
(ARISING OUT OF ORDER-IN-ORIGINAL NO.58/COMMR/ST/KOL/2011-12 DATED 09.01.2012 PASSED BY COMMISSIONER OF SERVICE TAX, KOLKATA)
FOR APPROVAL AND SIGNATURES OF
DR. D.M.MISRA, HONBLE JUDICIAL MEMBER
DR. I.P.LAL, HONBLE TECHNICAL MEMBER
1. Whether Press Reporters may be allowed to see :
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not ?
3. Whether Their Lordships wish to see the fair copy :
of the Order?
4. Whether Order is to be circulated to the Departmental :
Authorities?
M/S. UCO BANK, KOLKATA
APPELLANT (S)
VERSUS
COMMISSIONER OF SERVICE TAX, KOLKATA
...RESPONDENT (S)
APPEARANCE:
SHRI PULAK SAHA, CAFOR THE APPELLANT(S);
SHRID.K.ACHARYYA, SPECIAL COUNSEL FOR THE REVENUE.
CORAM:
DR. D.M.MISRA, HONBLE JUDICIAL MEMBER DR. I.P.LAL, HONBLE TECHNICAL MEMBER Date of Hearing:08.05.2014 Date of Decision:25.09.2014 ORDER NO.FO/A/75548/2014 Per Dr. D.M.Misra This is an Appeal filed against Order-in-Original NO.58/COMMR/ST/KOL/2011-12 DATED 09.01.2012 passed by the Commissioner of Service Tax, Kolkata.
2. Briefly stated the facts of the case are that the Appellant, a Public Sector Bank, are engaged in providing Taxable Services under the category, Banking and Other Financial Services, as defined under Section 65(12) of the Finance Act, 1994. A show cause was notice issued to them on 09.04.2010 alleging short payment of service tax of Rs.10,62,53,749/-, Education cess of Rs.21,25,075/- & Secondary Higher Education Cess of Rs.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 Rs.8,94,288/- & Education Cess of Rs.17,886/- & Secondary Higher Education Cess of Rs.8,943/-. Also, it is proposed to recover an amount of Rs.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 on bills on which bill-discounting facility has been provided, is neither in the nature of interest on loan nor the discount/commission earned for providing Discounting on Bills Service, and as such, not covered under the scope of either Sec.67 of the Finance Act,1994 brought into effect from 10.09.2004 nor under the exemption notification No.29/2004 ST dt.22.09.2004.
2.2 It is also alleged that the Appellant had not discharged service tax under the category, Renting of Immovable Property as defined under Sec. 65(90a) of Finance Act,1994 during the period 2007-08 & 2008-09.
2.3 It is further alleged that the Appellant had not followed the procedure laid down under Rule 6(3A)(c) of the CENVAT Credit Rules, being provider of dutiable and exempted Output Service.; they should have discharged the appropriate amount equivalent to the CENVAT Credit attributable to the input services used for rendering the exempted services subject to the conditions and procedures specified in sub-rule 3A of the said Rule 6 of CCR,2004. It is alleged that by virtue of Notification No.29/2004-ST dated 22.09.2004 and Notification No.13/04-ST dated 10.09.2004, taxable services are exempted under different circumstances from the whole of service tax leviable thereon under Section 66 of the Finance Act, 1994. It is alleged that the Appellant had not maintained separate account for common input services such as the Tele-Communication Services, Travel Agent Services, Courier Services for providing taxable and non-taxable services during the period, April, 2008 to March, 2009 as per the provision of Rule 6(3),the CENVAT Credit Rules, 2004. As per clause (iii) of Rule 6(3A) of the CCR,2004, once the option has been exercised, the Appellant is required to pay the CENVAT Credit amount attributable to exempted services periodically, which the Appellant had not carried out, resulting into non-payment of an amount of Rs.5,99,88,814/- which is recoverable from them.
3. On adjudication, the ld. Commissioner has confirmed the demand of service tax of Rs.11,02,10,462/- and the amount of Rs.5,99,88,814/- for utilizing CENVAT Credit availed on common input services used for providing exempted services and imposed penalty of Rs.17,01,99,276/-. Hence, the present Appeal.
4. At the outset, the Ld. CA for the Appellant submitted that the appellant 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 etc.. He submits that depending on the requirement of working capital (finance), by a borrower, bill-discounting facility is sanctioned by way of funding sub-limits as part of the cash credit facility. The facility for discounting of bills to a borrower is specifically granted by sanctioning on earmarking bill limit, within the cash credit limit for the said purpose. The ld. CA submitted that as per the Appellants Manuals of Instruction, they cannot sanction bill-discounting facility to a borrower, who does not have cash credit facility with the Appellant Bank. Further, he has submitted that in most cases for bill-discounting, no margin is stipulated; only in few cases, with a view to secure the advance, additional margin ranging from 10% to 25% is stipulated. The Appellant charges interest for that portion of funding which has been credited to the parties account not for the margin, if any, and not on the full value of bills purchased and on the margin of 10% or 20% stipulated, where margin has been prescribed against the type of bills purchased, the Appellant, discounts the bills after deducting the margin, crediting the partys account, to the extent as sanctioned limit for bills. This traditional banking practice is akin to allowing Drawing Power (DP) in cash credit account on the basis of hypothecated stock.
4.2 The ld. CA further submitted that for advance given to a party against the bills purchased, normal interest at the prevailing rate, as applicable, is being charged on all bills purchased from the date of purchase to the date of their payment in accordance with their tenure. Interest at the penal rate is being charged from the date of billing became overdue to the date of receipt of proceeds by the Appellant. The ld. CA vehemently argued that the interest earned on fund advanced to a borrower against the bills purchased, cannot be anything other than loan to the borrower; compensation received for allowing the use of the fund by the borrower, is also nothing but interest on loan.
4.3 The ld. CA further submitted that the balance sheet and profit & loss account of an Indian Banking Company, have to be prepared in conformity with Form: A and Form: B of the third schedule of the Banking Regulations Act; in Form: A under the Head, Advance it includes short-term loan, cash credit, overdraft and bills discounted; in Form-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, 1994. Referring to the judgment of this Tribunal in the case of State Bank of India, Indore vs. CCE, Indore, 2011(23) STR-346, he has submitted that the Department in that case did not dispute on the availability of exemption Notification No.29/2004-ST (supra) to bill discounting facility, but contested on the ground that the bank in the said case did not give certain informations, as required under Rule 4(A)(i) of the Service Tax Rules, 1994. It is his submission that the Department in case of other nationalized bank allowed in principle the exemption in respect of interest earned on bill discounting subject to fulfillment of the requirement. The ld. CA also submitted that in its invoice, the Appellant charged interest separately in respect of the fund allowed for utilization with regard to the bills discounted. Therefore, no service tax could be leviable in respect of the interest earned on bill discounting facility provided to the borrower by the Appellant.
4.5 On the issue of wrong availment of CENVAT Credit, the ld. CA submitted that the Appellant during the relevant period, 2008-09 provided taxable services under the category of Banking and Other Financial Services, which include services provided to Government of India or State Governments in relation to the collection of duties or taxes, which services had been exempted, vide Notification No.13/04-ST dated 10.09.2004. Accordingly, while exercising option to pay the amount in terms of Rule 6(3)(ii) of the CENVAT Credit Rules, 2004, the Appellant reversed the CENVAT Credit attributable to such exempted services. The value of the exempted services as well as the reversal of CENVAT Credit were duly reflected in the monthly periodical returns filed by the Appellant. It is the submission of the ld. CA that while computing the quantum of CENVAT Credit attributable to the exempted services, interest earned on overdraft facility and cash credit facility was not considered as exempted services under the bonafide belief that the entire value of the taxable service in the form of providing overdraft facility and cash credit facility being not made exempt under Notification No.29/2004-ST dated 22.09.2004, but only the value equal to the extent of interest earned on such overdraft facility of cash credit facility had been made exempt, accordingly, the said exempted value was not considered. The 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 Banks 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 Credit attributable to exempted services, it has not considered that the value equivalent to the interest earned on overdraft facility and cash credit facility, as the same cannot be considered as consideration received for providing exempted services within the meaning of Rule 2(e) of CENVAT Credit Rules, 2004.
4.6 The ld. CA has further submitted that present demand is barred by limitation, as the Department had failed to establish that non-payment/short payment of service tax was made by reason of fraud, collusion, willful suppression of facts or contravention of law. In support, he has referred to the decision of the decisions namely, (i) U.P. Sugar & Cane Dev. Corpn. Ltd. Vs. CCE, Allahabad 2009(242) ELT 260(Tri.-Del.), (ii) Uniworth Textiles Ltd. Vs.CCE, Raipur 2013 (288) ELT161(S.C).
5. Per contra, the ld. Special Counsel for the Revenue, Shri D.K.Acharya has submitted that as per Notification No.29/2004-ST dated 22.09.2004, there is no specific exemption of the interest amount charged on Bill, on which bill discounting facility has been provided. He has submitted that the Honble Karnataka High Courts judgment in the case of State of Mysore (supra) being related to income tax cases, not applicable to service tax laws as object of both the statutes are different. Further, distinguishing the said judgment, the ld. Special Counsel submitted that discounting of bills does not mean lending. Further, he has submitted that in the said Notification No.29/04-ST dt.22.09.2004, there are three distinct and independent categories namely, (i)Overdraft facility; (2) Cash Security facility; and (3) Bill discounting facility, which enjoy exemption for interest earned on first two categories and discount earned for the third category. It is his submission that the Appellant cannot avail exemption in respect of interest on bills for which exemption for discount has already been availed. Further, he has submitted that the third category is a combined discount-cum-interest category, which is exclusively covered by the exemption Notification No.29/04-ST.
5.1 It is his contention that interest, per se, is not exempt from service tax, which is evident from another Notification No.04/06-ST dated 01.03.2006, which allows exemption to the extent of 90% of interest, forming part of the taxable value under financial leasing services. The services provided in relation to 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 advances, where consideration is represented by interest or discount, is outside the purview of service tax. It is his submission that for financial leasing services, 10% of interest is still chargeable to service tax; for services provided in relation to chit 70% of interest is still subject to service tax. Responding to the arguments of the ld. CA in relation to the Schedule 9 to Balance Sheet of Bank of India, he has submitted that advances are classified under three categories (i) bills purchased and discounted;(ii) cash credit payable on demand and (iii) term loan. This means that bills discounted (advances arising out of those bills) are different species from cash credits and overdrafts, though all of them fall under the same genus of Advances of Schedule 9. In Schedule 13 to profit & loss account, Interest Earned as a genus, is having four species (i) interest/discount or advance/bills; (ii)income on investment; and (iii) interest on balance with Reserve Bank of India other inter-banking funds; and (v) Others.Interest and discount on all advances bills are in the same category of species of interest, but different from interest on balance on RBI or other inter-banking funds. It is his contention that this re-enforces earlier submission of the Revenue that all loans or advances are not treated alike nor all interest on incomes are treated alike by the RBI for banking purposes; nor by the Ministry of Finance for service tax purposes.
5.2 Ld. Special Counsel submitted that in the case of Commissioner of Service Tax, Mumbai vs. Boparais Marital Security Services 2014 (34) STR 45(Tri-Mum.) Security service provided to bank building along with fixtures, fittings, cash etc. do not amount to security services in relation to the Safe Deposit Lockers and hence, the benefit of exemption Notification No.56/98-ST dated 07.10.98 allowing exemption to security services for lockers cannot be extended to security services for bank building.
5.3 On the issue of irregular availment of CENVAT Credit, the ld. Special Counsel submitted that the main argument of the Appellant is that interest earned on any loan including cash credit and overdraft facility, is not a consideration for providing any service and hence, Rule 6(3A) has no application and further, as per Rule 2(e) of the CCR, 2004 exempted services ought to be wholly exempted services. Therefore, whatever 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 correct or otherwise?
7. The factual matrix of the case is that the Appellant, a Public Sector Undertaking bank, are engaged in providing taxable services under the category of Banking and Financial Services, as defined under Section 65(12) of the Finance Act, 1994, which reads as:
(a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or [commercial concern], namely:-
(i) financial leasing services including equipment leasing and hire-purchase;
[Explanation. For the purposes of this item, financial leasing means a lease transaction where
(i) contract for lease is entered into between two parties for leasing of a specific asset;
(ii) such contract is for use and occupation of the asset by the lessee;
(iii) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges; and
(iv) the lessee is entitled to own, or has the option to own, the asset at the end of the lease period after making the lease payment.
(ii) Omitted
(iii) merchant bank services;
(iv) securities and foreign exchange (forex) broking, and purchase or sale of foreign currency, including money changing;
(v) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services;
(vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy;
(vii) provision and transfer of information and data processing; and
(viii) banker to an issue services; and
(ix) other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facilily, safe deposit locker, safe vaults, operation of bank accounts;
b) foreign exchange broking and purchase or sale of foreign currency, including money changing provided by a foreign exchange broker or an authorised dealer in foreign exchange or an authorised money changer, other than those covered under sub-clause (a).
Explanation. - For the purposes of this 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 moneyoverdraft 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 taxable services, as prescribed under Section 67 of the Finance Act, 1994 up to 18.04.2006, thereafter, under Rule 6(2) of the Service Tax (Determination of Value) Rules, 2006. To support the argument, the ld. CA took us through the Balance sheet of the Appellant, where purchase and discount of Bill and loans are shown in Schedule 9 as advances and in Schedule- 13 under the accounting head interest earned, interest/Discount on Advance/Bills, are reflected. Precisely, it is their contention that the value of interest received against Bill Discounting Facility extended by the Appellant is similar to the interest charged on loans.
10. The second line of argument advanced on behalf of the Appellant is that the value of interest received against Bill Discounting, is exempted from levy of service tax under Section 66 of the Finance Act, 1994, in view of the Notification No.29/2004-ST dated 22.09.2004. We will deal with the said arguments in seriatem.
11. Looking into clause (ix) of the definition of Banking and Financial Services mentioned above, it could be noticed that the services of Lending and Bill Discounting Facility find separate place, leaving no doubt in ones mind that the legislature has intended to deal it separately, at least for the purpose of service tax on such services under the Finance Act,1994. The words/expressions, Lending or Bill Discounting Facility have not been defined under the Finance Act,1994 or the Rules made thereunder. Therefore, it is necessary to understand its meaning and usage in the common parlance.
12. In CONCISE OXFORD ENGLISH DICTIONARY meaning of lend is as follows:
* lend v. (past and past part. lent) 1 allow (someone) to use (something) on the understanding that it will be returned. 2 allow (someone) the use of (a sum of money) under an agreement to pay it back later, typically with interest. 3 give (a quality) to. 4 (lend oneself to) accommodate or adapt oneself to. .(lend itself to) be suitable for.
* PHRASES lend an ear (or ones ears) listen * sympathetically or attentively.
* DERIVATIVES lendable adj. lender n.
* ORIGIN OE laenan, of Gmc origin; rel. to loan Meaning of loan is:
* loan n. a thing that is borrowed especially a sum of money that is expected to be paid back with interest.
* the action of lending . short for LOANWORD > v. give us a loan; lend.
- PHRASES ON LOAN being borrowed.
- DERIVATIVES LOANABLE adj. loanee n. loaner n.
- ORIGIN ME: from ON lan, of Gmc origin; rel. to lend.
In Blacks 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 borrowers 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 repayable on demand and there is no maturity, the banker is entitled to demand their payment immediately on presentation before the drawee. The practice, adopted in the case demand bills, is known as purchase of the bills. In case of a usance bill maturing after a period of time, the banker retains the bill for that period and realises the amount of the bill from the drawee on its due date. This practice is called discounting of the bill. Obviously, the discount is charged by the banker at a higher rate than the charge made in case of purchase of a bill. The discount includes, besides the expenses incurred in realisation, the interest on the amount of the bill credited to the drawer's account. In case the bill is dishonoured on the due date the amount due on the bill together with interest and other charges in debited to the drawer's account.
14. The contention of the Revenue is that in the case of loan, borrower initially receives the borrowed amount called the principal, from the lender and obliges to re-pay the said principal in equal instalments comprising a portion of principal and/or interest over a period of time, which provides an incentive to the lender to be engaged in the loan, whereas under bill discounting facility, banks take the bill drawn by borrowers i.e. customers, and pay them immediately, deducting some amount as discount/commission. The banks then present the bill to the borrowers customer on the due date of the bill and collect the total amount. If the bill is delayed, the borrower or customer pay the bank pre-determined interest, depending on term of transaction. It is the view of the Department that there is a difference between the service of lending/loan and interest paid thereon, and the bill discounting facility, extended by a bank to its customer. Precisely, it is their contention that in the former case, interest paid on loans, would not form part of taxable value, whereas in the latter case, interest is chargeable to service tax.
15. Analysing the meaning of lending, loan, bill discounting , as cited above, and taking into consideration the arguments advanced by both sides, we are of the opinion that even though under the bankers domain and practice, discounting of bills might be a form of advancing money to the customers and akin to some or most of the characteristics of a loan, but under the Finance Act, the 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 the bill discounting facility service is exempted from the scope of levy of service tax under Section 66 of the Finance Act by virtue of Notification No.29/2004-ST dated 22.09.2004. It reads as:
In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of taxable service provided to a customer, by a banking company or a financial institution including a non-banking financial company, or any other body corporate or commercial concern, in relation to,-
(a) overdraft facility;
(b) cash credit facility; or
(c) 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, discount, from the service tax leviable thereon under section 66 of the said Act, subject to the condition that the said interest amount is shown separately in an invoice, a bill or, as the case may be, a challan issued for this purpose.
17. On a simple reading of the said Notification, in the present context, it is clear that a portion of the value of taxable services received by a banking company, in providing the taxable services viz. (a) overdraft facility, (b) cash credit facility, (c) discounting of bills, bills of exchange and cheque, as is equivalent to the amount of interest, on such overdraft, cash credit, or as the case may be, discounts, are exempted from the scope of service tax leviable under Sec.66 of the Finance Act,1994.
18. It is the contention of the Revenue that in the said Notification, taxable value, equivalent to interest, in relation to the overdraft facility and cash credit facility, only be allowed to be exempted, but not in relation to bill discounting facility. The contention of the Appellant, on the other hand, is that interest received on the overdraft facility, cash credit facility as well as on discounting of bills, would be exempted from the service tax, in view of the use of or before the expression, as the case may be and also from the meaning of the said expression as the case may be.
19. On the availability of benefit of the said Notification, as far as the overdraft facility and cash credit facility are concerned, neither side disputes about its eligibility. 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 Honble 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, notwithstanding anything contained in clause (a); apply to the Controller for an order directing any tenant occupying the whole or any portion of the remaining part of the building to put the landlord in possession thereof, if he requires additional accommodation for residential purposes or for purposes of a business which he is carrying on, as the case may be: In the said case their Lordships, observed as:
21. The words as the case may be in sub-cl.(c) have been construed by the Division Bench of the Madras High Court to mean that they restrict the landlords right to secure additional accommodation for residential purposes only in respect of a residential building and in the case of additional accommodation for business purpose only to a non-residential building. We are of the view that in the context of sub-clause (c), the words as the case may be would only mean whichever the case may be i.e. either residential or non-residential.
22. This interpretation was later endorsed by the Apex Court, in similar circumstances, in the case of Subramaniam Shanmugham vs. M.L.Rajendran and Others, AIR 1987 SC 2166. Their Lordships in that case, at para 3, had observed as follows:
* 3. Justice Morris in Bluston & Bramley Ltd. vs. Leigh (1950) 2 All ER 29 at p.35 explained that the phrase as the case may be meant in the events that have happened. Our attention was also drawn to the expression as the case may be as appearing in the Words and Phrases Permanent Edition 4 page 596. The meaning of the expression as the case may be is what the expression says, i.e., as the situation may be, in other words in case there are separate and distinct units then concept of need will apply accordingly. Where, however, there is no such separate and distinct unit, it has no significance. There is no magic in that expression. The expression as the case may be has been properly construed in the judgment mentioned hereinbefore.
23. Under the Notification 29/2004 ST, the value equivalent to interest or discount, received from the customers in providing the services, namely, overdraft facility, cash credit facility or discounting of bills, bills of exchange or cheques, are exempted from the scope of service tax. All these services are referred to under the banking and financial services. Further, it is significant to note that value equivalent to interest or 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 first part of the said Notification the subjects for exemption from service tax are overdraft facility, cash credit facility, or bill discounting facility etc., and the objects are value equivalent to interest or discount, as the case may be, that is, as per the circumstances. Thus, 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. Support to the aforesaid interpretation could be appreciated on reading para 19.1 of the Circular No.80/10/2004-ST dt. 17.09.2004 which reads as:
19.1 The existing taxable service, i.e, 'banking and other financial services!, has been expanded both in terms of its coverage and the types of service providers. Financial services would now also include specified financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit, bill of exchange, providing a bank guarantee, overdraft facility, bill discounting, safe deposit bankers, or safe vaults and operation of bank accounts. The interest amount would; however, remain excluded from the purview of service tax. In addition to banking company, financial institution including a non-banking financing company, body corporate and any other commercial concern providing financial services will also be covered.
25. Besides, on an enquiry from the Bench about the practice of assessment in case of other banks, it has been informed that no demand has been issued to other banks for rendering similar services. We also find that in the new negative list regime introduced w.e.f 01.07.2012, there is no scope for any ambiguity and call for interpretation as the position has been made clear in the respective provision 66D of the Finance Act,1994; the relevant provision reads as follows:
SECTION [66D. Negative list of services. The negative list shall comprise of the following services, namely :
(n) services by way of
(i) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount;
26. In view of the above, the confirmation of demand on the value of interest received in rendering bill discounting facility and imposition of penalty by the Ld. Adjudicating authority, deserves to be 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 the banking and financial services, under which it fall are not exempted from service tax levy. In other words, the sub-categories of banking and financial services, if exempted, the CENVAT Credit availed on the input services, used in rendering such exempted sub-service, would not be required to be reversed under Rule 6(3) of CCR, 2004. The relevant provisions of Rule 6(3) of the CCR,2004 reads as:
RULE 6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.- (1) [(3)?Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options, as applicable to him, namely :-
(i) the manufacturer of goods shall pay an amount equal to ten per cent. of value of the exempted goods and the provider of output service shall pay an amount equal to eight per cent. of value of the exempted services; or
(ii) the manufacturer of goods or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedure specified in sub-rule (3A).
Explanation I. If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year.
Explanation II. For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted services or provision of exempted service.
(3A)?For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely :-
.
(c) the manufacturer of goods or the provider of output service, shall determine finally the amount of CENVAT credit attributable to exempted goods and exempted services for the whole financial year in the following manner, namely :-
.
(iii) the amount attributable to input 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 Credit attributable to the exempted service as per the procedure laid down under Rule 6(3A) of CCR,2004.
29. The exempted service is defined under Rule 2(e) of the CENVAT Rules,2004 reads as:
RULE 2.?Definitions. In these rules, unless the context otherwise requires, -
(e) exempted goods means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act;
30. A simple reading of the definition of exempted service reveals that it also includes services that are exempt under Section 66 of the Finance Act, 1994. In the present case, interest on overdraft facility and cash credit facility are exempted from service tax under Section 66 of the Finance Act,1944 by virtue of Notification No.29/2004 ST dt.22.09.2004. Therefore, these services would definitely come under the scope of the definition of exempted service, hence, the argument of the ld. CA that to attract Rule 6(3) of the CENVAT Credit Rules, 2004, the entire taxable service i.e. banking and financial services should be exempted and not few services mentioned under the categories of clause (ix) of the said Banking and Financial Services, is untenable. Thus, the ld. Commissioner is right in its approach to include the value of exempted services namely, overdraft facility and cash credit facility in computing the CENVAT Credit attributable to input services used in providing exempted services, as laid down under Rule 6(3A)(c) of the CENVT Credit Rules, 2004.
31. It is further argued that since all these facts were disclosed by the Appellant in their ST-3 returns by appending a note to the respective ST-3 returns, therefore, the demand of the CENVAT Credit is barred by limitation. It is difficult at this stage, to ascertain whether additional notes to the statutory ST-3 returns had been enclosed with the respective Returns and in the said notes the Appellant had disclosed all facts including availment of CENVAT Credit and its reversal as per Rule 6(3A)(c) of the CENVAT Credit Rules,2004, since it has been fairly admitted that these documents were not specifically submitted before the ld. Commissioner during adjudication; hence, no finding has been recorded in this regard in the Order. In the interest of justice, therefore, the Appellant be allowed a fair chance to present these evidences and be subjected scrutiny/verification by the department. Accordingly, we set aside the confirmation of demand of CENVAT Credit and imposition of penalty and remand the case for redetermination of the liability, if any, only on the issue of limitation. Appeal disposed of on above terms.
(Pronounced on 25.09.2014)
Sd/-25.09.14 Sd/-25.09.14
(I.P.LAL) (D.M.MISRA)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
DUTTA/
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ST/A/74/2012
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