Kosamattam Finance (P) Limited Vs Commissioner of Central Excise & Service Tax (CESTAT Bangalore)
Coming to the question as to whether the appellants are required to pay service tax on the risk interest/interest on gold loan/additional interest shown as incidental charges before October 2008, it is not disputed that the appellants are a NBFC and are engaged in collection of deposits and advancing of loans against security inter alia in the form of gold. The appellants charge interest on the loans advanced. It is the case of the department that prior to October 2008, appellants have collected some incidental charges which is taxable to service tax and for the period after October 2008, the appellants have collected risk interest / interest on gold loan over and above the prescribed rate of 18% as per RBI. For the period prior to October 2008, it is the contention of the appellant that in view of the restrictions, imposed by the Kerala Government, that no money lender will charge interest over and above 2% than the interest charged by commercial banks, they have shown a portion of the interest as incidental charges. However, after October 2008, the same is referred to and accounted as risk interest / interest on gold loans.
The appellant submits a Circular dated 31.3.2008 issued by their Head Office to their Branches.
It is this circular on the basis of which department alleges that these are the amounts collected in addition to the interest and therefore, are taxable to service tax.
We find that learned counsel for the appellant submits that any contract or any other document for that purpose should be read and understood in a wholesome manner rather than picking up points in favour of one argument or the other. On going through the Circular, it is clear that some amount of interest is shown to be incidental charges. We are of the considered opinion that only because there is change in the nomenclature or in the treatment of the account, certain receipts would not cease to be interest. We find that Revenue could not adduce any documentary evidence to show that these incidentals were not interest.
We find from the definition that the interest payable can be in any manner. This being so, it would not be legally tenable for the Revenue to say that portion of the interest shown and collected as incidental charges would cease to be interest. We find further that in terms of Rule 6(2)(iv) of the Service Tax (Determination of Value) Rules, 2006, the value of any taxable service does not include interest on loans; in terms of Section 66D (n) of the Finance Act, 1994 effective from 01.07.2012, consideration received by way of interest on loans or advances without any condition or limit on the rate of interest is excluded from the levy of service tax. During the period post-October 2008, Revenue seeks to take the plea that interest charged over and above 18% is a consideration towards the service and therefore, exigible to service tax. We find it difficult to buy this argument. We find that fixation of rate of interest is not the work of service tax officers and thus, it is beyond the scope of their activity. It is for the RBI to fix the interest rates and regulate the banking and non-banking financial institutions and to take action required, if any, for violations. Just because the appellants are collecting an interest over and above 18%, the said remuneration does not come under the ambit of service tax. It is demonstrated by the learned counsel for the appellant that RBI has given liberty to the NBFCs to fix the interest rates taking into account the various factors. Therefore, we are of the considered opinion that as long as the consideration received for advancement of loans is interest in whatever manner it is accounted for and at whatever rate it is collected, the same is not chargeable to service tax in view of the legal position discussed above. We also find that the learned Commissioner vide order dated 6.7.2018 (Revenue appeal No.ST/21862/2018) has rightly concluded that the demand of service tax on interest of gold loans is not sustainable. We uphold the view and set aside the demand on account of interest irrespective of their nomenclature i.e., incidental charges/risk interest/interest on gold loan.
Coming to the demand of service tax on token charges, postal charges, etc., we find that these are the incidental expenditure recovered by the appellants from their customers. Hence, they are in the nature of reimbursable expenses. Going by the ratio of the apex court’s decision in the case of Intercontinental Consultants and Technocrats (supra), we find that these do not get counted for the purpose of charging service tax. Learned Authorized Representative for the department submits that the adjudicating authority has distinguished the above judgment in Order-in-Original dated 6.7.2018. Having gone through the order, we find that the learned Commissioner seeks to distinguish between the recoverable expenses discussed in the above case and the case of the appellant. It would be naïve to come to such a conclusion only because the reimbursable expenses discussed in Intercontinental Consultants and Technocrats (supra) relate to travel cost, hotel stay, transportation, etc., and in the instant case, it is about token charges, postal charges, etc. We find that distinguishing is only on the categories of expenses and not on the principle of exclusion of reimbursable expenses and thus, not acceptable. We also find that there have been number of judgments on the excludability of reimbursable expenses. Therefore, we hold that the demand on the token charges, postal charges, etc., would not sustain and the same needs to be set aside.
FULL TEXT OF THE CESTAT BANGALORE ORDER
The appellants, M/s. Kosamattam Finance Pvt. Ltd. are Non-Banking Financial Company (NBFC), are engaged in the business of lending money against security of gold/ornaments; the appellants collect interest on the loans advanced; they collect token charges at the rate of Rs.5/Rs.10 as reimbursement of expenses incurred for issue of identity tokens which are surrendered back to the appellants by their customers on the closure of the loan account; they also collect postage charges towards the expenditure incurred in issuing notices to their customers. In addition, the appellants also provide the service of air / rail / bus travel agents and render services in booking the tickets. The appellants have discharged service tax on the same. The appellants who are working as representative of M/s. Wall Street Finance Ltd., Bombay for disbursement of money on behalf of M/s. Western Union Financial Services. Revenue alleged that part of the interest collected by the appellants, over and above 18% of interest, at times referred to as incidental charges are leviable to service tax; token charges and postage charges recovered are also chargeable to service tax; the charges recovered for disbursement of money as representative of M/s. Wall Street Financial Ltd., Bombay is also chargeable to service tax. Accordingly, show-cause notices covering various period have been issued and confirmed against the appellants. Hence various appeals have been filed as detailed below:
