UCO BANK Vs. CESTAT

JUDGEMENT

(1.) The order dated November 12, 2013, passed by the Customs, Excise and Service Tax Appellate Tribunal, Kolkata, in an Appeal No. S.T. 74 of 2012 is assailed by the writ petitioner in this writ petition. A show cause notice was issued on the petitioner contemplating to initiate a proceeding for recovery of an amount on account of service tax so far as it relates to income from discounting of bills and the availment of CENVAT Credit. The petitioner bank replied to the said show cause notice and categorically asserts that the amount charged by way of an interest from the customers based on the credit limits is accounted under the head 'Interest on Bills' and where there is no pre- sanctioned limit, when the bills are presented, the value of bill is credited to the customers' account after deducting discounting charges/interest and the same is accounted under the head 'Discount on Bills'. According to the bank the RB1 guidelines provides a separate head for the aforesaid amount which in effect partake the character of an interest which is not eligible to service taxes. Both the petitioner and the department relied upon the notification dated 29-2-2004 where the Central Government exempts so much of the value of the taxable services provided to the customers by the banking company or the financial institution including a non-banking financial company in relation to the over draft facility; cash credit facility or discounting of bills, the bills of exchange or cheques as equal an amount to the interest on such over draft, cash credit or as the case may be discount from service tax leviable thereon under Section 66 of the said Act. The said notification further provides that this exemption can be claimed provided the interest amount is shown separately in an invoice, a bill or as the case may be challan issued for this purpose.

(2.) Mr. Khaitan, learned advocate appearing for the petitioner submits that sub-rule (2) of Rule VI of the Service Tax (Determination of Value) Rules, 2006, excludes the value of the taxable service on the interest on loans. He, therefore, submits that the interest component does not come under the service tax and the authority should not have raised a demand for the interest received on discounting of bills.

(3.) Learned advocate for the Department interprets the said notification differently. According to him, the interest earned on discounting of bills, bills of exchange or cheques can only be exempted if it is done in relation to the over-draft facility or cash credit facility provided the same is shown separately in an invoice or bill or a challan. According to him, whatever the amount is received on discounting the bills it does not partake the character of an interest unless the conditions imposed on the said notification are strictly adhered to. He submits that the bank could not produce before the assessing authority the separate bills or the challan relating to the income from discounting the bills and, therefore, the authority have rightly denied the claim of the petitioner.