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Input service tax credit for Bank

abanerji (81 Points)

29 May 2009

Service tax department has asked a Bank "to reverse proportionate cenvat credit for non-taxable services provided by the Bank and pay 8% of interest on loans".

What is the legal position?

Thanks,

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2 Replies

Madhukar N Hiregange (Chartered Accountant) (39034 Points)
Replied 30 May 2009

Paying 8% on interest would be an economic catastrophy as credits in all may not be more than 1-2%.

Whether interest is a service is to be decided also before proportinate credit is availed.

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abanerji (81 Points)
Replied 31 May 2009

Yes, 8% is catastrophic I understand. But, as the law stands now (considering the april '08 amendment), is it necessary to reverse proportionate cenvat credit with respect to interest on loans for a bank?