Required your valuable suggestions for the query posted below:
One Branch of a Nationalised Bank availed input credit in Service Tax. They have availed 100% credit of input service under Cenvat Credit Rules, 2004, for providing output service “Banking & Other Financial Services” .
The branch’s stand is as follows: As per provisions of Section 65(12)(a)(ix), the banking and other financial services means and include, “other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bills of exchange, transfer of money including telegraphic transfer, mail transfer, and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank accounts.” Further as per Rule 6(2)(iv) of the Service Tax (Determination of Value) Rule 2006, no service tax is payable on interest on loan. The Rule specifically state that, the value of taxable service does not include interest on loan. So interest on overdraft facility, cash credit facility, discounting of bills does not form part of taxable service also not stated as exempted services and those are excluded from service tax net. The branch is collected and deposited service tax on commission and charges from such overdraft facility, cash credit facility, discounting of bills, bills of exchange & cheques. Further as per the notification no 29/2004 dt 22.09.2004, the Central Government, has excluded interest on overdraft facility, cash credit facility or discounting of bills from service tax leviable thereon with the condition that, the said interest amount is shown separately in an invoice, bills or as the case may be a challan issued for this purpose. The branch is also complying this notification by showing this interest separately by way of maintaining different accounts of such overdraft facility, cash credit facility and discounting of bills, bills of exchange or cheques.
Therefore the branch has claimed 100% credit of input service under Cenvat Credit Rules, 2004, for providing output service
Pl provide your valuable suggestion along with reference to the Act, Rule, Notification on the above matter. Can the stand of the branch be justified
Here my suggestion is that there is difference between exemption and not inclusion of valuation of services, exclusion of Interest income is by virtue of Valuation rules and not an abatement, although the major portion of income in banking sector is Interest income, but it is not exempted but exclude for valuation of services. You should make appeal for the same
CAclubindia
