In a relief to the State Bank of Patiala, the Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that giving of loans is not a service, Interest earned by the Bank on loans is not liable to Service Tax.
The appellant, State Bank of Patiala is a banking company providing service under the category of ‘Banking and other Financial Service’ among others.
It appeared to Revenue that such input service is exclusively used for providing exempt services i.e. service tax is not chargeable on the interest earned by the bank on loans/ advances. Hence, cenvat credit is not available on this service, as per the provision of Rule 6(1) read with Rule 6(5) and 6(3) of the Cenvat Credit Rules. It is further alleged that these facts came to the knowledge of the Department in the course of the audit or else, the same would have gone unnoticed. Further alleged, there has been suppression of facts on the part of the appellant, and accordingly, the show cause notice dated 23.10.2013 was issued, invoking the extended period of limitation under the proviso to Section 73(1) of the Finance Act.
Mr. Abhishek Jaju, the counsel appearing for the appellant urged that the show cause notice is misconceived, as prima facie giving of loans is not an output service, rather money in real terms somewhat akin to goods goes out of the bank when the loan is advanced. Secondly, only for the reason that interest earned by the Bank on the loans is not chargeable to service tax, it cannot be said that giving of loan is an exempt service. It is further urged that admittedly appellants have maintained proper books of accounts and statutory registers, and further, they have filed their returns with the Department regularly. Further, there is no allegation in the show cause notice that the appellant has not filed the return properly and /or there is any suppression of facts or misstatement in the returns. Accordingly, he prays for allowing the appeal both on limitation and on merit.
The Coram of Judicial Member, Anil Choudhary ruled that giving of loans is not a service, rather it is an activity of the Bank in which money in real terms which is akin to goods, is given to the borrower. Further, for the reason that interest earned by the Bank on loans is not liable to tax, the show cause notice alleged that giving of loan is an exempt service. The show-cause notice has been issued after more than 32 months from the last date when the return was due from the financial year ending March 31, 2010.
The CESTAT while allowing the appeal held that the show cause notice is bad for invoking the extended period of limitation.
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