Service per se is not exempted, but only part of taxable value is exempted by notification 29/2004-ST – Rule 6(3)(i) of CCR, 2004 does not apply: CESTAT

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The appellant is a Co-operative Bank.

They are availing cenvat credit of the service tax paid on inputs and/or input services and provide banking and financial services which include lending service.

The case of the department is that since the appellant is providing service of lending wherein the interest is exempted, therefore, they are required to pay 8/6% of the value of such exempted service.

The CST, Aurangabad confirmed the demand of Rs.95,73,114/- and imposed interest and equivalent penalty.

Before the CESTAT, the appellant submitted that in the case of overdraft facility, cash credit facility or discounting of bills, bills of exchange or cheques, the amount of interest on such facilities is exempted in terms of notification 29/2004-ST; that this exemption is only a sort of abatement from the gross value but the service is per se is taxable; therefore, it cannot be said that the appellant is providing exempted service. Reliance is placed on the decision in the matter of identically placed assessee M/s. Kopergaon People’s Co-operative Bank Ltd., Ahmednagar , wherein the Commissioner had dropped the proceedings vide order-in-original No. NSK/EXCUS/002/010/2015-16 dated 23.6.2015 and also on the decision in the case of Vaidyanath Urban Co-operative Bank Ltd. – 2014-TIOL-3299-CESTAT-MUM.

The AR, while reiterating the finding of the original authority submitted that ‘interest’ is an exempted service on which no service tax is paid. Reliance is placed on the judgment in UCO Bank vs. CST, Kolkata2014-TIOL-1902-CESTAT-KOL.

The Bench extracted the notification 29/2004-ST and observed –The notification does not exempt the service as whole whereas the service tax is exempted only to the extent of so much of the value of taxable service provided to a customer in relation to overdraft facility, cash credit facility or 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.

It is, therefore, very clear that the service per se is not exempted, but a part of the taxable value is only exempted. If this be so, then it cannot be said that the service provided by the appellant is exempted. Accordingly, in respect of taxable service, Rule 6(3)(i) of Cenvat Credit Rules, 2004 shall not apply.

Noting that the Commissioner’s order in Kopergaon People’s Co-operative Bank Ltd.(supra), though not binding, but has a strong persuasive value and which observations the Bench agrees with, the CESTAT reproduced the findings contained in paragraph 5 of the decision in Vaidyanath Urban Co-operative Bank Ltd. (supra) and concluded that the demand confirmed by the adjudicating authority is not sustainable.

The impugned order was set aside and the Appeal was allowed.

Citation: 2018-TIOL-1377-CESTAT-MUM