Interest on loan in financial leasing excluded from service tax value, securing full waiver of pre-deposit and stay.

Interest on loan earned in the course of financial leasing was held prima facie not includible in the taxable value for service tax, applying the Supreme Court ruling in Association of Leasing & Financial Service Companies and the valuation provisions under Section 67 of the Finance Act, 1994 read with Rule 6(2)(iv) of the Service Tax Valuation Rules, 2006. On that basis, the appellant was found entitled to complete waiver of pre-deposit and stay of recovery pending appeal.

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Issues: Whether interest on loan earned in the course of financial leasing was includible in the taxable value for service tax and, consequently, whether the appellant was entitled to complete waiver of pre-deposit and stay of recovery.

Analysis: The appellant was engaged in financing and financial leasing activity, and the disputed demand related to the interest component. Relying on the Supreme Court decision in Association of Leasing & Financial Service Companies and the explanation to Section 67 of the Finance Act, 1994, together with Rule 6(2)(iv) of the Service Tax Valuation Rules, 2006, the Tribunal held that interest on loan was not to be included in taxable service value. On that prima facie view, the appellant had made out a case for complete waiver at the interim stage.

Conclusion: The interest component was held prima facie not includible in the taxable value, and complete waiver of pre-deposit was granted with stay of recovery during pendency of the appeals.

Final Conclusion: The interim demand was stayed in full and the appellant was relieved from making any pre-deposit during the pendency of the appeals.

Ratio Decidendi: Interest on loan is not includible in the taxable value of service for the purpose of service tax.

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