Decided on January 28,2015

Karur Vysya Bank Ltd. Appellant
C.C.E. Respondents


D.N.Panda, Member (J) - (1.)COUNSEL submits that it is the interest income of the Bank that has been taxed in the present adjudication even though there were no service charges received in this regard. According to law if any taxable service is provided and consideration received therefrom, that is only exigible to service tax. Therefore the adjudication is ill -founded which has taxed interest income without provision in that regard in the Finance Act, 1994 (hereinafter referred to as the Act).
(2.)REVENUE seriously opposes above proposition of the appellant on the ground that the hypothecation is also a banking service. Even leasing of the equipments and the goods shall be covered by the banking and financial services. Therefore, any amount received other than the recovery of principal amount shall be liable to service tax reading provision of section 65(105)(zm) combinedly with section 65(105)(12)of the Act. He further submits that loan and hypothecation are different. Therefore any consideration received from hypothecation is taxable by the above said taxing entry.
Heard both sides and perused the adjudication order.

Ld. Adjudicating Authority in para -4 of his order has framed the issue which is whether the noticee is liable to pay service tax on the interest received on hypothecation loan. To decide the issue, he has also discussed character of the term loan in the said paragraph. He says that the term loan is legally different from financial lease, hire purchase and hire purchase transactions, which are not loan or advance. Therefore, interest received in the name of loan transaction for purchase of vehicles, machineries is to be treated as finance charges received from hire purchase/financial lease and not on loan for the reason that the services rendered are not just giving loan but services of hire purchase/financial leasing provided. He further says that during the period 14.05.2003 to 30.11.2007, interest received constitutes the gross value of taxable service provided and liable to service tax. Accordingly, he imposed service tax with the consequence under law to follow.

(3.)ADJUDICATION order reveals that emphasis of the adjudicating Commissioner was to tax interest received by the appellant from hypothecation of vehicles/machineries and other equipments for the above period constituting the taxable value.

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