2019 (4) TMI 813 - AT - Service Tax

Commitment charges ruled taxable interest, demand set aside, limitation period extension rejected

The Tribunal set aside the demand on commitment charges, ruling them as taxable interest. The demand was beyond the show cause notice's scope, leading to ... Taxability - commitment charges - whether commitment charges are part of Interest or not - Held that:- This Tribunal in the case of CCE, Bombay vs. Ram Decorative & Industries Ltd. [1998 (2) TMI 402 - CEGAT, NEW DELHI] has held that the commitment charges being in the nature of liquidated damages for the breach of contract are not includible in the assessable value in terms of Section 4 of Central Excise Act - demand not sustainable. Extended period of Limitation - Held that:- For invoking the extended period of 5 years, it was for the Department to prove the malafide in terms of suppression of facts or the mis-representation on part of the appellant, that too, with an intend to evade the duty but there is no such evidence on record which may prove beyond sufficient doubt the willful default on part of the appellant - In absence of any such evidence, the extended period would not have been invoked. Appeal allowed - decided in favor of appellant. Issues:1. Liability of the appellant to pay Service Tax on commitment charges.2. Scope of the show cause notice in proposing recovery of Service Tax only on interest earned.3. Entitlement of the Department to invoke the extended period of limitation for the show cause notice.Issue 1: Liability of the appellant to pay Service Tax on commitment chargesThe appellant, engaged in providing banking and financial services, was served a show cause notice proposing recovery of Service Tax on various amounts, including commitment charges. The Commissioner confirmed a demand on commitment charges, arguing that they were included in the taxable value for certain years. The appellant contended that commitment charges were penal in nature and not taxable under banking services. The Tribunal analyzed definitions of interest under various acts and clarified that commitment charges are considered interest on unutilized credit facilities. Citing relevant case law and circulars, the Tribunal concluded that commitment charges fall within the scope of interest and are thus taxable.Issue 2: Scope of the show cause notice in proposing recovery of Service Tax only on interest earnedThe Commissioner's order dropped demands related to interest earned on cash credit, overdrafts, and term loans, confirming only a small demand on commitment charges. The appellant argued that the show cause notice did not cover recovery on commitment charges and that the Department exceeded its scope. The Tribunal examined the notice's language and found that it proposed recovery of Service Tax only on interest earned, not commitment charges. Ultimately, the Tribunal held that the demand on commitment charges was beyond the notice's scope and set it aside.Issue 3: Entitlement of the Department to invoke the extended period of limitation for the show cause noticeThe show cause notice was issued in 2011 for the period 2006-07 to 2008-09, beyond the normal one-year period. The Department sought to invoke a five-year extended period, alleging suppression of facts or misrepresentation by the appellant. However, the Commissioner had dropped significant demands, indicating no willful default. The Tribunal found no evidence supporting the extended period invocation and deemed the notice time-barred. Consequently, the demand based on the extended period was deemed unsustainable, leading to the appeal being allowed.In conclusion, the Tribunal set aside the order confirming the demand on commitment charges, as it was beyond the scope of the show cause notice. Additionally, the show cause notice was considered time-barred due to the lack of evidence supporting the Department's invocation of the extended period of limitation.