Evasion of Service Tax by Banks - DGCEI MO Circular
DURING the course of investigation against one of the Co-Operative Banks, DGCEI noticed that the Bank was, inter alia, providing banking and other financial services to their clients which include
(a) Issue of cheque books
(b) Issue of Bankers Cheques/Pay Orders/Demand Drafts
(c) Advancing loans to clients such as personal loans, vehicle loans, housing loans, working capital loans, term loans etc
(d) Arranging for local and international Letters of Credit
(e) Bill discounting
(f) Providing Bank guarantees etc. and charging their customers who avail of the above facilities.
DGCEI found that the Bank was charging processing fee @ 0.25% of the loan amount subject to a maximum of Rs.10,00,000/- from the customers for processing of the loan applications. Investigations conducted revealed that the Bank was bifurcating the said processing fee into two parts, one as processing fee and the other as agreement fee @ 25% and 75% of the total fee respectively. Processing fee is collected on pre-sanction basis for appraisal & sanction of the loan and the agreement fee is collected on post-sanction basis for executing the loan documents for release of the sanctioned facilities. It was revealed that the Bank, was not paying service tax on 75% of the processing fee which they termed as ‘agreement fee' till July, 2012.
DGCEI brings this Modus Operandi to the filed formations for taking necessary action in similar cases.