By TIOL News Service

MUMBAI, MAY 31, 2018: APPELLANT is a Co-operative Bank.

While rendering output services of "Banking and Financial Services" they discharged the service tax liability on the value minus the value in respect of interest on over-draft and cash credit facilities.

It is the case of the Revenue that amount so reduced from the tax liability is “exempted services” and as CENVAT Credit is availed on the common input service, records being not maintained separately, the liability of 6% / 8% of value of exempted services as per the provisions of Rule 6(3) of Cenvat Credit Rules, 2004 arises. 

The demand in excess of Rs.30crores was confirmed by the CCE, Aurangabad along with interest and penalties.

In the matter of stay application filed by the co-operative bank, the Tribunal had while waiving the requirement of making pre-deposit and granting a stay observed thus -

"Prima facie, we find that there is no justification in the confirmation of demand with interest and penalties for the reason that the services rendered by the appellant are not exempted by Notification 29/2004-ST. The said Notification only excludes the value of the amount received by the appellant towards the interest of over-draft facility and cash credit facility. Learned Counsel was correct in pointing out to us that the issue may be covered by the judgement of the Tribunal in the case of Vaidyanath Urban Co-Operative Bank Ltd. in final order no. A/1218/14 dated 14.07.2014 - 2014-TIOL-3299-CESTAT-MUM for the purpose of stay and we find it so."

We reported this order as - 2016-TIOL-1549-CESTAT-MUM.

The appeal was heard some time back and an order was issued recently.

The appellant inter alia submitted that since they have paid actual credit along with interest, the provision of Rule 6(3)(2) read with sub rule (3A) stands complied with;that they have followed rule 6(5) of CCR, 2004; that amount of demand of Rs.30,00,66,294/- was more than the value of services rendered i.e. Rs.10,87,89,210/- which is absurd; that the Tribunal in case of Vaidyanath Urban Co-operative Bank Ltd. vs. CCE, Aurangabad - 2014-TIOL-3299-CESTAT-MUM involving identical issue held that since only part of the taxable value is exempted Rule 6(3) of CCR, 2004 is not applicable.

The AR, while reiterating the findings of the impugned order relied upon the decision in UCO Bank vs CST, Kolkata - 2014-TIOL-1902-CESTAT-KOL.

The Bench considered the submissions and after reproducing notification 29/2004-ST observed thus -

++ Lending per se is taxable but part of value of the lending service to the extent of interest is exempted, therefore, service is taxable, only part of the value is exempted vide notification No. 29/2004-ST dated 22-9-2004.

++ In this fact, entire basis of Revenue that interest being exempted service, therefore, Rule 6(3)(ii) is applicable is absolutely incorrect. Rule 6(3)(ii) is applicable only in case when common input service is used in a service which is wholly exempted from payment of service tax.

++ In the present case, lending service which is one of the ‘banking and other financial service' is taxable, only part of the value of such service which represent interest is only exempted, therefore, Rule 6(3) has no application.

Concluding that the demand of 8%/6% raised by the adjudicating authority is not sustainable, the impugned order was set aside and the Appeal was allowed.

(See 2018-TIOL-1665-CESTAT-MUM)

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