Order date – 01 September 2022

Facts – 

• The appellant, Tirupati Urban Co-Operative Bank Ltd, is a provider of ‘banking and other financial services’ were issued two show cause notices.
• According to tax authorities, the exemption of ‘interest’ and ‘discount of cash credit, overdraft, bill discounting facilities etc.’ in terms of notification no. 29/2004-ST dated 22nd September 2004 precluded the availment of credit to the extent utilized in rendering these services as provider of ‘banking and other financial services’ taxable under section 65 (105) (zm) of Finance Act, 1994.
• Therefore, it was held by the lower authorities that, in the year 2005-08, the appellant had utilized ₹1,55,737, ₹1,93,592 and ₹3,66,295 respectively to pay tax of ₹4,38,069, ₹6,62,222 and ₹9,02,560 respectively while it should have been restricted to ₹87,614, ₹1,32,444 and ₹1,80,512 respectively and thereby liable to be subjected to recovery of ₹68,123, ₹61,148 and ₹1,85,783 respectively.
• For the period thereafter, the recovery of ₹ 1,16,06,248 and ₹ 76,16,489 at 8% of value of exempted service of ₹14,50,78,106 for 2008-09 and ₹9,52,06,119 for 2009-10 and ₹1,16,17,624 at 6% of value of exempted service of ₹19,36,27,064 was ordered.
• Aggrieved, the appellant filed an appeal.

Issue – 

• Whether the confirmation of recovery of Service tax for the disputed period is justified ?

Order – 

• It was observed by the Tribunal that the entire proceedings is founded upon ‘interest’ being consideration for rendering of ‘exempted service’ and that the only option available to the appellant was to be charged the appropriate percentage on the value of such ‘exempted service’ during 2008-09, 2009-10 and 2010- 11.
• The Tribunal relied on Bhingar Urban Co-op Bank Ltd – Tribunal case and held that the lower authorities had not considered the manner in which the reversal was to be handled as per rule 6 of CENVAT Credit Rules, 2004 and that ‘exempted services’, as defined in rule 2 of CENVAT Credit Rules, 2004, should have been the basis for determining the ineligibility for continued maintenance of the credit availed.
• Also in the absence of details of credit taken during the disputed period and utilized, the tribunal was unable to come to conclusion of the reversal, if any, required under the CENVAT Credit Rules, 2004.
• Therefore, the order was set aside and the matter was remanded back to the original authorities.