2013 (3) TMI 409 - Commissioner - Service Tax

Commitment Charges as Interest Excluded from Taxable Value: Appellant's Appeal Allowed

The Commissioner allowed the appeal by M/s. Amalgamations Private Limited, ruling that 'Commitment Charges' should be treated as interest and are excluded ... Service tax was paid only on ‘Guarantee Commission’, and not on the ‘Commitment charges’ - Valuation - Rule 6(2) - Held that:- The Board has already clarified that interest would remain excluded from taxable value. Moreover, the appellant has also pointed out that TDS has been deducted on commission under Section 194H and TDS has been deducted on interest under Section 194A of the Income-tax Act, 1961. This shows the difference of the item which is in the nature of commission and which is in the nature of interest. Section 2(28A) of the Income-tax Act, 1961 has clarified as under : “The term interest has been defined in new clause (28A) inserted, in Section 2 of the Income-tax Act with a view to removing doubts about the true character of fees or other charges paid in respect of monies borrowed or in respect of credit facilities which have not been utilized. The definition is very wide and covers interest payable in any manner in respect of loans, debts, deposits, claims and other similar rights or obligations. It also includes any service fees or other charges in respect of such loans, debts, deposits, etc. as also fees in the nature of commitment charges on unutilised portion of credit facilities. In view of the above discussions and also in conformity with the decision in the appellant’s own case for the earlier period by this appellate forum in the very same issue, appeal was allowed. Issues:Service tax liability on 'Commitment Charges'Analysis:The appeal was filed by M/s. Amalgamations Private Limited, challenging the demand for service tax on 'Commitment Charges' received by them for providing Corporate Guarantee to their subsidiaries. The appellant argued that since they are not a banking company and what they provided was a corporate guarantee, they should not be liable to pay service tax. They contended that 'Commitment Charges' should be considered as interest, which is excluded from taxable value as per the Income-tax Act, 1961. The appellant cited various case laws and circulars to support their arguments.The Commissioner analyzed the definitions of 'Interest' under the Income-tax Act, 1961 and the Central Board of Direct Taxes' circular, which clarified that interest includes service fees or charges in respect of credit facilities. The Commissioner referred to the Madras High Court's observations and the Supreme Court's decisions to support the broad interpretation of interest. The Commissioner also highlighted that the Board had clarified that interest remains excluded from taxable value. Additionally, the appellant pointed out that TDS had been deducted on commission and interest separately under the Income-tax Act, indicating the distinction between the two.Considering the arguments and previous decisions on similar issues, the Commissioner set aside the Lower Adjudicating Authority's order and allowed the appeal. The Commissioner concluded that 'Commitment Charges' should be treated as interest, which is excluded from taxable value as per the relevant rules. Therefore, the demand for service tax on 'Commitment Charges' was deemed unsustainable, and the appeal was upheld.This detailed analysis of the legal judgment highlights the key arguments, interpretations of relevant laws, and the final decision made by the Commissioner regarding the service tax liability on 'Commitment Charges' in the case of M/s. Amalgamations Private Limited.