Uco Bank Vs. Customs,excise and Service Tax Appllete - Court Judgment

SooperKanoon Citationsooperkanoon.com/1130615
CourtKolkata High Court
Decided OnFeb-11-2014
JudgeHARISH TANDON
AppellantUco Bank
RespondentCustoms,excise and Service Tax Appllete
Excerpt:
order sheet wp no.7 of 2014 in the high court at calcutta constitutional writ jurisdiction original side uco bank versus customs,excise and service tax appllete tribunal,east zonal before: the hon'ble justice harish tandon date : 11th february, 2014. appearance: mr.j.p.khaitan, sr.advocate, mr.c.m.ghorawat, advocate, ms.anupa banerjee, advocate, mr.shib shankar banerjee, advocate, mr.k.k.maity, advocate, the court : 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 presanctioned 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 rbi guidelines provides a separate head for the aforesaid amount which in effect partake the character of an interest which is not exigible 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 overdraft 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. 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. 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. it appears from the impugned order that the total demand is made for a sum of rs.17.01 crores out of which rs.11.02 crores are on account of nonpayment of service tax towards interest on bill discounting and rs.5.99 crores for the wrong availment of the cenvat credit. cenvat credit rules 2004 defined the exempted services to mean taxable services which are exempted from whole of the service tax leviable thereon and includes the services on which no service tax is leviable under section 66 of the finance act. the said definition is amended with effect from 1.4.2011 by inserting the word “and taxable services whose part of value is exempted on the condition that no credit of inputs and input services used for providing for taxable services shall be taken.” the period for which the show-cause notice is issued for non-payment of the service tax and wrongful availment of the cenvat credit relates to the period prior to the insertion made with effect from 1.4.2011. the reference can be made to rule 6 (i) of the cenvat credit rules where it is specifically provided that the cenvat credit shall not be allowed on such quantity of the input used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacture of exempted goods and their clearance up to the place of removal or for provision of exempted services, except in the circumstances mentioned in sub-rule (2).sub rule (2) provides for maintenance of a separate account to avail the cenvat credit. this court, therefore, finds that so far as the claim relating to the charges on discounting of the bills are concerned, the petitioner has shown the same in the separate account and treated the same as interest which is not exigible to service tax. the meaningful reading of the notification dated 22.9.2004, prima facie, suggests that the discount earned on discounting of the bills, if shown separately, is exempted from the taxable services in equivalence to the amount of interest on the over-draft or the credit. the interpretation made by the authority that exemption on account of interest is limited to the over-draft facility and the cash credit and not on the amount while discounting the bills are not free from any doubt. the notification clearly provides for discounting of the bills to be exempted from the purview of the taxable services and, therefore, this court does not accept the interpretation tried to be given to such notification by the tribunal. this court, therefore, finds that a strong prima facie case has been made out by the petitioner for waiver of the amount pertaining to the service tax on the charges collected by the bank while discounting the bills. so far as the availment of cenvat credit is concerned, according to the petitioner, the authorities have invoked the amended provision which cannot be made applicable to the case of the petitioner as the period for which the proceeding has been initiated is prior to the date of coming in force of the said amendment. it appears that the authorities have recorded that the petitioner has not maintained a separate account on the input service used in providing taxable service and the exempted services and, therefore, the cenvat credit which the petitioner bank utilised was wrongly availed of. from the reply also this court finds that the petitioner bank says that they have not maintained the separate account. this court, therefore, finds that so far as the cenvat credit is concerned, the bank has not been able to make out a strong prima facie case. this court, therefore, grants a total waiver of pre-condition deposit of an amount which relates to the bill discounting charges/interest to the tune of rs.11.02 crores are concerned; so far as the sum of rs.5.99 crores on account of wrong availment of the cenvat is concerned, this court does not find that the petitioner has been able to make out strong prima facie case for full waiver. the portion of the impugned order by which the tribunal directed the petitioner to deposit 50% of the duty levied on the taxable services is hereby quashed and set aside. the petitioner is directed to deposit 50% of the duty imposed over the cenvat credit within fortnight from date with the appropriate authority. once the deposit is made by the petitioner-bank, the tribunal is directed to take utmost steps to dispose of the appeal as expeditiously as possible without granting unnecessary adjournments and preferably within four weeks from the date of communication this order in accordance with law. needless to mention that this court has not gone into the merits of the said appeal. the observations and findings made hereinabove are prima facie and tentative in nature and does not have any impact on the tribunal while deciding the appeal on merit. the writ petition is, thus, disposed of. there shall be no order as to costs. (harish tandon, j.) cs.
Judgment:

ORDER

SHEET WP No.7 of 2014 IN THE HIGH COURT AT CALCUTTA Constitutional Writ Jurisdiction ORIGINAL SIDE UCO BANK Versus CUSTOMS,EXCISE AND SERVICE TAX APPLLETE TRIBUNAL,EAST ZONAL BEFORE: The Hon'ble JUSTICE HARISH TANDON Date : 11th February, 2014.

Appearance: Mr.J.P.Khaitan, Sr.Advocate, Mr.C.M.Ghorawat, Advocate, Ms.Anupa Banerjee, Advocate, Mr.Shib Shankar Banerjee, Advocate, Mr.K.K.Maity, Advocate, The Court : 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 presanctioned 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 RBI guidelines provides a separate head for the aforesaid amount which in effect partake the character of an interest which is not exigible 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 overdraft 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.

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.

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.

It appears from the impugned order that the total demand is made for a sum of Rs.17.01 crores out of which Rs.11.02 crores are on account of nonpayment of service tax towards interest on bill discounting and Rs.5.99 crores for the wrong availment of the CENVAT Credit.

CENVAT credit rules 2004 defined the exempted services to mean taxable services which are exempted from whole of the service tax leviable thereon and includes the services on which no service tax is leviable under Section 66 of the Finance Act.

The said definition is amended with effect from 1.4.2011 by inserting the word “And taxable services whose part of value is exempted on the condition that no credit of inputs and input services used for providing for taxable services shall be taken.” The period for which the show-cause notice is issued for non-payment of the service tax and wrongful availment of the CENVAT Credit relates to the period prior to the insertion made with effect from 1.4.2011.

The reference can be made to Rule 6 (I) of the CENVAT Credit rules where it is specifically provided that the CENVAT Credit shall not be allowed on such quantity of the input used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacture of exempted goods and their clearance up to the place of removal or for provision of exempted services, except in the circumstances mentioned in Sub-Rule (2).Sub Rule (2) provides for maintenance of a separate account to avail the CENVAT Credit.

This Court, therefore, finds that so far as the claim relating to the charges on discounting of the bills are concerned, the petitioner has shown the same in the separate account and treated the same as interest which is not exigible to service tax.

The meaningful reading of the notification dated 22.9.2004, prima facie, suggests that the discount earned on discounting of the bills, if shown separately, is exempted from the taxable services in equivalence to the amount of interest on the over-draft or the credit.

The interpretation made by the authority that exemption on account of interest is limited to the over-draft facility and the cash credit and not on the amount while discounting the bills are not free from any doubt.

The notification clearly provides for discounting of the bills to be exempted from the purview of the taxable services and, therefore, this Court does not accept the interpretation tried to be given to such notification by the Tribunal.

This Court, therefore, finds that a strong prima facie case has been made out by the petitioner for waiver of the amount pertaining to the service tax on the charges collected by the bank while discounting the bills.

So far as the availment of CENVAT Credit is concerned, according to the petitioner, the authorities have invoked the amended provision which cannot be made applicable to the case of the petitioner as the period for which the proceeding has been initiated is prior to the date of coming in force of the said amendment.

It appears that the authorities have recorded that the petitioner has not maintained a separate account on the input service used in providing taxable service and the exempted services and, therefore, the CENVAT Credit which the petitioner bank utilised was wrongly availed of.

From the reply also this Court finds that the petitioner bank says that they have not maintained the separate account.

This Court, therefore, finds that so far as the CENVAT Credit is concerned, the bank has not been able to make out a strong prima facie case.

This Court, therefore, grants a total waiver of pre-condition deposit of an amount which relates to the bill discounting charges/interest to the tune of Rs.11.02 crores are concerned; so far as the sum of Rs.5.99 crores on account of wrong availment of the CENVAT is concerned, this Court does not find that the petitioner has been able to make out strong prima facie case for full waiver.

The portion of the impugned order by which the Tribunal directed the petitioner to deposit 50% of the duty levied on the taxable services is hereby quashed and set aside.

The petitioner is directed to deposit 50% of the duty imposed over the CENVAT credit within fortnight from date with the appropriate authority.

Once the deposit is made by the petitioner-bank, the Tribunal is directed to take utmost steps to dispose of the appeal as expeditiously as possible without granting unnecessary adjournments and preferably within four weeks from the date of communication this order in accordance with law.

Needless to mention that this Court has not gone into the merits of the said appeal.

The observations and findings made hereinabove are prima facie and tentative in nature and does not have any impact on the tribunal while deciding the appeal on merit.

The writ petition is, thus, disposed of.

There shall be no order as to costs.

(HARISH TANDON, J.) cs.