No service tax liability on interest amount

CHATROOM

The value of any taxable service does not include interest on loans.

We had purchased a DEPB (Duty Entitlement Passbook) from the market and used the same for duty payment on the goods that we imported. Now, the Customs have issued notice under Section 28 of the Customs Act, 1962 stating that the DEPB in question has been cancelled by the concerned licensing authority on the grounds that they were obtained by submitting forged shipping bills and bank certificates. We have a problem because the party in whose favour the DEPB was originally issued is not traceable. Can you please guide us on what we can do?

The key question is whether you used the DEPB before they were cancelled. If so, you are quite safe because the DEPB, even the one obtained on the basis of bogus documents, was valid on the date of utilisation. Since you had not colluded with the one who obtained the license from the licensing authorities, you cannot be held to be a party to the fraud. So long as you had purchased the DEPB in the bonafide belief that it is genuine, the allegation of mis-declaration on your part by the Customs and consequent demand must fail. You may refer to the decision of Punjab and Haryana High Court in the case of Commissioner of Customs Versus Leader Valves Ltd. [2007 (218) ELT 349 (P& H)].

The Customs have held up our import of reconditioned second hand capital goods on the grounds that it is remanufactured. What is the difference between reconditioned and remanufactured?

Firstly, you may refer Customs to the DGFT Policy Circular no. 4/2006 dated 20 April 2006 that a declaration by the importer at the time of clearance that the capital goods imported are second hand capital goods and do not fall under the category of remanufactured capital goods may be accepted by the Customs authorities. In my opinion, remanufacture would refer to altering the basic function of the machine whereas reconditioning would refer to altering the condition without altering the basic function.

I have taken a personal loan on my credit card. The credit card agency has charged service tax on the interest amount. I understand that no service tax is leviable on interest. What is the correct position?

Notification no. 29/2004-ST dated September 22 2004 exempts value of taxable service provided to a customer, by a banking company or a financial institution including a non-banking financial company, or any other body corporate or any other person in relation to overdraft facility as is equivalent to the amount of interest on such overdraft, from the service tax leviable thereon under section 66 of the said Act, subject to the condition that the said interest amount is shown separately in an invoice, bill or challan issued for this purpose. As per of Service Tax (Determination of Value) Rules, 2006 also, the value of any taxable service does not include interest on loans. Therefore, you need not pay service tax on the interest amount.

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