The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, on 23 September set aside the service tax demand of Rs. 1,26,841 against Canbank Factors Limited, holding that the Department had failed to establish the taxable character of the disputed receipts.

A Bench comprising Technical Member Vasa Seshagiri Rao and Judicial Member Ajayan T.V. held that bank charges cannot be subjected to service tax merely because they are recorded under a ledger-head bearing that description, unless the Revenue establishes that the receipts represent consideration for taxable services. The Tribunal observed:

“The Department has not undertaken a transaction wise examination to establish that the entire Rs.10,33,215/- represented consideration for a taxable service rendered by the appellant. Mere classification under the internal ledger head “Bank Charges” cannot, by itself, establish taxability.”

Canbank Factors, a non-banking financial company engaged in factoring services, was registered under the taxable category of Banking and Other Financial Services. It had claimed exemption under Notification No. 29/2004-ST in respect of discounting and bank charges.

Following a departmental audit, the Revenue issued a show cause notice proposing a service tax demand of over Rs. 21.33 crore for the period from October 2006 to March 2009, followed by subsequent notices on the same issue.

The adjudicating authority accepted that the discounting charges represented interest and were exempt under the notification. However, it confirmed service tax of Rs. 1,26,841, including cess, on certain amounts accounted for as “Bank Charges”, along with interest and penalty under Section 78 of the Finance Act, 1994.

Canbank Factors challenged the demand, submitting that the Department had earlier examined its books and accounting practice in an Order-in-Original dated 25 June 2008 and accepted that the bank charges represented interest relating to cheque discounting.

The company further submitted that the disputed amounts were separately reflected in its statements and that merely accounting for them under the ledger head “Bank Charges” could not change their substantive nature. It also argued that amounts representing actual bank expenses recovered from clients on a reimbursable basis could not form part of the taxable value during the relevant period.

The Tribunal noted that the earlier adjudication had accepted the appellant's accounting practice and that there was no material showing any change in the nature of the receipts during the period under dispute.

It further observed that the impugned order itself described the disputed bank charges as cheque issuing charges and other expenses recovered from clients as reimbursable charges. However, the Department had not undertaken a transaction-wise examination to establish that the entire amount of Rs. 10,33,215 represented consideration for a taxable service rendered by the appellant.

Further, the Bench relied on the Supreme Court's ruling in Union of India v. Intercontinental Consultants & Technocrats Pvt. Ltd., noting that reimbursable expenses were liable to be excluded from the taxable value for the relevant period. It therefore held that the Revenue had failed to establish the taxable character of the confirmed bank charges. It also noted that interest or discount was exempt and reimbursed bank expenses were not taxable during the relevant period.

On limitation, the Tribunal found that the relevant entries were available in the appellant's books and ledgers and that the issue had earlier been examined by the Department. It held that there was no evidence of deliberate suppression, wilful misstatement or concealment with an intent to evade service tax. Therefore, the extended period under the proviso to Section 73(1) of the Finance Act, 1994 was unavailable. Since the entire confirmed demand was beyond the normal limitation period, the Tribunal held that it was also barred by limitation.

Accordingly, the CESTAT set aside the service tax demand of Rs. 1,26,841, along with interest and penalty under Section 78, and allowed consequential relief, including refund of the amount paid under protest.

For Appellant: Smt. Vijayalakshmi, Manager

For Respondent: Shri G. Krupa, Authorised Representative

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Case Title :  M/s. Canbank Factors Limited v. Commissioner of GST and Central ExciseCase Number :  Service Tax Appeal No. 41248 of 2017CITATION :  2026 LLBiz CESTAT(CHE) 581
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