No Service Tax Payable On Interest Income On Overdraft/Cash Credit Facilities: Kolkata CESTAT

The Kolkata Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has quashed the service tax demand on interest equivalent on overdraft or cash credit extended by cooperative banks.

The bench of R. Muralidhar (Judicial Member) and Rajeev Tandon (Technical Member) has observed that Notification No. 29/2004-ST clearly exempts service tax on interest income on overdraft/cash credit facilities, and it is required to be shown separately in the invoice, bill, or challan for the purpose.

The appellant/assessee is a cooperative, Apex Bank. Following the visit of the Internal Audit Party of the Dibrugarh Commissionerate, a demand for service tax on interest earned on overdrafts and cash credits for the period 2008–09 to 2011–12 was issued to the appellant.

The department contended that the invoices, bills, and challans were not in accordance with the stipulations of Rule 4A of the Service Tax Rules, 1994, and therefore the assessee was liable to pay service tax.

The adjudicating authority as well as the Commissioner (Appeals) have essentially gone by the fact of non-adherence to the prescriptions of the rule by disentitling the appellant from the benefit of Notification No. 29/2004-ST.

Thus, a show cause notice for non-payment of service tax on taxable services rendered (equivalent to the amount of interest) under the category of “banking and other financial services” was issued for the purpose of tax recovery.

The orders of the two lower authorities stated that the appellants failed to produce an invoice, bill, or challan, and therefore, they have confirmed the amount of service tax. The Commissioner (Appeals), while relying on the amendment to Rule 4A(1) of the Service Tax Rules via Notification No. 30/2004-ST dated September 22, 2004, has observed that the required stipulation was not fulfilled.

Under Rule 4A of the Service Tax Rules, 1994, it is compulsory for a service tax assessee to issue a bill or invoice within 14 days from the date on which the taxable service was completed or the date on which the payment was received for the service, whichever comes first.

The assessee contended that it is a provider of banking services and regularly furnishes monthly banking statements to their constituents who enjoy overdraft and cash credit facilities. The monthly statements, apart from showing the transactions undertaken by the constituent during a month, also clearly and separately indicate charges, interest, etc., along with relevant dates on which such charges or interest were levied or accrued. The banking statements provided to the constituent would clearly meet and satisfy the requirements of Rule 4A.

The tribunal held that with the expansion of the scope of acceptable documents for the purpose of notification No. 30/2004-ST dated September 22, 2004, there is no reason why bank statements cannot be considered to serve the purpose. Thus, the withholding of eligibility for exemption and consequent demand for service tax from the appellant is grossly illegal and cannot be sustained.

The tribunal, while allowing the appeal, held that it is a settled proposition of law that technical barriers, if any, cannot be an impediment to granting appropriate relief.

Counsel For Appellant: Suprakas Chaudhury

Counsel For Respondent: S. Mukhopadhyay

Case Title: The Assam Cooperative Apex Bank Ltd. Versus Commr. of CGST, Customs & Central Excise, Guwahati

Case No.: Service Tax Appeal No. 76450 of 2014

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