Giving of loans by bank to borrower is not a service but an activity to give money in real terms to borrower which is akin to goods: Delhi CESTAT

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Giving of loans by bank to borrower is not a service but an activity to give money in real terms to borrower which is akin to goods

Case details: State Bank of Patiala v. Commissioner, Central Excise & Central Goods & Services Tax - [2021] 129 167 (New Delhi - CESTAT)

Judiciary and Counsel Details

    • Anil Choudhary, Judicial Member
    • Abhishek Jaju, Adv. for the Appellant.
    • Pradeep Gupta for the Respondent.

Facts of the Case

The appellant was a banking-company providing service under the category of ‘Banking and other Financial Service’ among others. In the course of audit for the period April, 2008 to September, 2011 it was observed that that the appellant had taken cenvat credit wrongly on input service of Collateral Management charges in relation to processing of loans/ advances. The department observed that such input service was exclusively used for providing exempt services and service tax was not chargeable on the interest earned by the bank on loans/advances and therefore, cenvat credit was not available on this service. The show cause notice was issued and demand was confirmed. It filed appeal against the order and appeal was dismissed. The appellant field appeal before the CESTAT.


The Honorable CESTAT observed that giving of loans by banking-company to borrower is not a service, rather it is an activity of the Bank in which money in real terms which is akin to goods, is given to borrower. Further, merely because interest earned by the Bank on loans was not liable to tax, the show cause notice wrongly alleged that giving of loan was an exempt service. It was also observed that the show cause notice was issued after more than 32 months from the last date when the return was due from the financial year ending 31-3-2010. Accordingly, it was held that the show cause notice was bad for invoking the extended period of limitation.

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