TaxTMI 
TaxTMI 
2013 (8) TMI 527
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....ted above. This provision prescribes a formula for provisional reversal of credit during every month in respect of Cenvat credit attributable to exempted service to be reversed in such circumstances. There is another clause that is 6 (3A) (c) (iii) for finally determining the amount to be reversed at the end of every financial year. The principle underlying in both the provisions are essentially the same, though the latter makes use of final figures of a financial year. This appeal is dealing with provisional reversal for each month. Rule 6 (b) (iii) reads as under: (b) the manufacturer of goods or the provider of output service shall, determine and pay, provisionally, for every month, - (iii) the amount attributable to input services used in or in relation to manufacture of exempted goods [and their clearance upto the place of removal] or provision of exempted services (provisional) = (E/F) multiplied by G, where E denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the preceding financial year, F denotes total value of [output) and exempted services provide....
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....Act; 10. He submits that a service is to be considered as 'exempted service' only if it is fully exempted from tax. It is not disputed that the applicant is paying service tax on leasing services, hire purchase etc. though after availing some partial exemption. In fact they are paying tax on 10% of the interest income in view of exemption under Notification 04/2006-ST. Therefore, according to him, the service has to be considered as taxable service and, therefore, no part of interest on loan should enter in factor "E" above, but full value of interest will enter in factor "F" as part of the value of the taxable service and consequently the ratio E/F would be around 18.74% only according to their calculation. 11. The result of the arguments on opposite sides as summarized in para 2 of the impugned order is reproduced below: (Value Rs. in lakhs) Factor 2009-2010 Percentage of credit to be reversed as per Applicant Percentage of credit to be reversed as per Revenue E Total value of exempted services provided 22924 116625 Total value of taxa....
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....(Determination Value) of Rules provides that interest on loans shall not form part of value of any taxable service. So prima facie interest cannot enter into factor "F" as value of taxable service. Further prima facie we are of the view that a service cannot be considered as both taxable and nontaxable at the same time. So the exempted portion of interest cannot enter factor "E" as value of exempted service. This interpretation will have the effect of keeping 90% of interest out of both E and F for services like hire-purchase, leasing and hypothecation. That is to say, we are at this prima facie stage, disagreeing with the argument of the Revenue that it will form part of both "E" and "F" and the argument of the applicant that it will enter only factor "F" in the formula. An Issue can arise as to how this interpretation can be consistent with exemption under Notification 4/2006-ST and definition at Rule 2(e) of Cenvat Credit Rules, 2004. Notification No.04/2006-ST dt. 01-03-2006 provides as under: "In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (herein referred to as the Finance Act), the Central Government....
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.... out of both "E" and "F". 19. In this context we have considered the decision of the Hon. Apex Court in the case of Association of Leasing & Financial Service Companies Vs. UOI - 2010 (20) S.T.R. 417 (S.C.) where the Hon. Court upheld the principle that the Parliament is competent to charge service tax on leasing services and interest received can be a good measure of the value of service (Refer para 39 of the judgment). However the principle in Rule 6 (2) (iv) of the Service Tax Valuation Rules was not directly in challenge before the court and not discussed. Issue as to whether this provision will apply only to loans given by banks and not hire purchase and hypothecation given by NBFC can be a matter of dispute but not considered in the said decision. The Hon. Court in para 4 of the order had taken note of the fact that the Union of India is trying to charge tax only on 10% of the interest which the Hon Court found to be quite a reasonable measure for charging tax. 20. There is one more issue about which a prima facie view is to be taken. That is the issue whether the items of income as listed in para 13 above is to be excluded from both the factors "E" and "F" as argued by....