Interest on loans

[sunil mehta]

As per Rule 6(2) of Service Tax (Determination of Value) Rules, 2006, 'Interest on loans" is excluded from the value of taxable services.But notfn.no.29/2004 dt.22/9/2004 says that"Taxable services shall be exempt in relation to (a) overdraft facility (b) cash credit facility (c) discounting of bills, bill of exchange or cheques as is equivalent to the amount of interest on such overdraft, cash credit or, as the case may be, discount from the service tax. Whether for the purpose of  CC Rule, Rule 6(3), int.on loans on OD facility,cash credit facility will be inluded in the value of 'exempted services'in the formulae(as it is exempted by notfn.)? Or whether the interest on ALL loans will be not taken totally in 6(3)formulae as int. on loans is excluded by Valuation Rules? Which will prevail?-Notnf. no.29/2004 or valuation rules?

AI Summary

Interest exclusion in service valuation: exempt overdraft and cash credit values affect Cenvat calculation under credit rules.
Rule 6(2) excludes interest on loans from taxable value, while Notification No.29/2004 exempts overdraft, cash credit and discounting of bills to the extent of interest. Rule 6(3) of the credit rules refers to the value of exempted service; accordingly interest excluded by valuation rules would not be included in the Rule 6(3) calculation, but the value of exempted facilities such as overdraft, cash credit or discounting should be taken into account. An alternative view treats any service not attracting service tax, whether by non inclusion or exemption, as governed by Rule 6 for cenvat purposes.