Service Tax on the value of interest received on Bill Discounting facility

Recently there was an interesting case between a Public Sector Bank (PSB) and Revenue Authorities wherein one of the issues was applicability of Service Tax on the value of interest received on Bill Discounting facility extended by the PSB to its customers.

Readers may like to read my earlier post on Bill Discounting : Issue of applicability of TDS in Bills Discounting

In the present case regarding applicability of Service Tax, the PSB argued that the interest collected on Bill Discounting was exempted from levy of Service Tax by virtue of Notification No.29/2004-ST dated September 22, 2004.

The deciding authority CESTAT accepted the argument of PSB and held that as per the first part of the said Notification, the subjects for exemption from Service Tax are OD facility, CC facility, or Bill Discounting facility and objects are value equivalent to interest or discount, as the case may be i.e. as per the circumstance. Therefore, the value of interest as well as discount in connection with providing the services of OD facility, CC facility, or Bill Discounting facility would be exempted from Service Tax under section 66 of the Finance Act 1994.