The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore bench has held that the Non-Banking Financial Companies (NBFC) are not liable to pay service tax on the amount of risk interest charged on gold loans.
The appellants are Non-Banking Financial Company (NBFC), are engaged in the business of lending money against security of gold/ornaments and they collect interest on the loans advanced. The appellants charge interest on the loans advanced. It is the case of the department that prior to October 2008, appellants have collected some incidental charges which is taxable to service tax and for the period after October 2008, the appellants have collected risk interest / interest on gold loan over and above the prescribed rate of 18% as per RBI. The department alleged that these are the amounts collected in addition to the interest and therefore, are taxable to service tax.
The Tribunal bench comprising Technical Member Mr. P Anjani Kumar and Judicial Member P Dinesha found that the appellants are a NBFC and are engaged in collection of deposits and advancing of loans against security inter alia in the form of gold.
“We find that learned counsel for the appellant submits that any contract or any other document for that purpose should be read and understood in a wholesome manner rather than picking up points in favour of one argument or the other. On going through the Circular, it is clear that some amount of interest is shown to be incidental charges. We are of the considered opinion that only because there is change in the nomenclature or in the treatment of the account, certain receipts would not cease to be interest,” the Tribunal said.
Deleting the demand, the Tribunal observed that “the fixation of rate of interest is not the work of service tax officers and thus, it is beyond the scope of their activity. It is for the RBI to fix the interest rates and regulate the banking and non-banking financial institutions and to take action required, if any, for violations. Just because the appellants are collecting an interest over and above 18%, the said remuneration does not come under the ambit of service tax.”
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