TaxTMI 
TaxTMI 
2011 (11) TMI 95
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....06-07 and 2007-08, the appellant was recovering prepayment charges, on prepayment of part/full loan during the loan period, under the Head 'Additional Interest' (prepayment) but were not paying any Service Tax on such charges. 2. A Show Cause Notice was issued for recovering the Service Tax payable on these reset charges and prepayment charges which were collected under the head 'Additional Interest' by considering the same as taxable value under the category of 'Banking and other financial services'. The said demand was confirmed by the Commissioner of Service Tax, Ahmedabad against which the appellant has filed the present appeal. 3. The appellant has filed the present appeal on the following grounds: i) Prepayment charges are not in relation to Banking and other financial services and therefore not liable to Service Tax. ii) Reset charges are not in relation to Banking and other financial services and therefore not liable to Service Tax. iii) The reset charges/prepayment charges are not the consideration for providing any value addition to the services, therefore not liable to Service Tax. iv) Reset charges/prepayment charges charged to the customers by the app....
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....ission that collection of prepayment charges and reset charges have nothing to do with any service and therefore is not covered under Banking and other financial services. It was also submitted that for the subsequent period, the Commissioner (Appeals) also followed this decision in his order dt.10.08.11. On the other hand, it was submitted on behalf of the Revenue that the decision in the case of SIDBI, would not be applicable since it was rendered when the definition of service itself was different. Further, by referring to the definition as per Finance Act, 1994, it was submitted that any service in relation to lending would attract Service Tax and prepayment charges and reset charges are definitely relatable to lending. 6. When borrower prefers to make prepayment of part/full amount of loan during the loan period, the appellant levies prepayment charges on the amount prepaid. It was submitted that this amount is dependent upon the tenure of loan, differential interest and the interest loss that may have to be borne by the appellant and further balance repayment period etc. According to the appellant, these charges are nothing but additional interest and they treat it as inte....
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....nking services; (iv) securities and foreign exchange (forex) broking; (v) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, but does not include cash management; (vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; and (vii) provision and transfer of information and data processing; and (viii) other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank accounts; (b) foreign exchange broking provided by a foreign exchange broker other than those covered under sub-clause (a); From the above, it can be seen that sub-clause (viii) and clause (b) marked bold were added in the 2004 Budget thus expanding the scope of services." 9. A taxable service is defined under Section 65(105)(zm) of Finance Act, 1994 and is as under: "Taxable service mea....
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....ese activities can be definitely in relation to Banking & other Financial services, which includes lending after 10.09.04. Further, when loans are fore-closed, the situation gives rise to the issue of asset liability mis-match for the lender since lender has to find alternative source for deployment of such funds. Prepayment charges are the charges leviable by a bank/lender to offset the cost of such finding such alternative source for deployment of fund and also intended to make exit difficult for the borrower. This shows that prepayment charges can never be considered to be in the nature of interest. 11. The appellants relied upon the judgment of Tribunal in the case of SIDBI, wherein the Tribunal had held that the activity of foreclosure of the loan cannot be treated as Banking & other Financial Service. 12. We have considered the decision of the Tribunal in the case of SIDBI. In that case, the demand for Service Tax was made on the amount collected for prepayment of direct loan from the customer. In that case also, as in the present case, it was submitted by the appellant that foreclosure of loan is a case of ending service and foreclosure charges are basically in lieu of....
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....esentative appearing for the Department and listed below, to support his submission that the facts of the decision relied upon have to be shown, and the ratio of the case is what is decided therein in the facts of the case and not what logically can be deducted from the same. i) Collector. of CCE, Calcutta Vs Alnoori Tobacco Products 2004 (170) ELT 135 (SC) ii) CCE Bangalore Vs Srikumar Agencies 2008 (232) ELT 577 (SC) iii) Sneh Enterprises Vs CC New Delhi 2006 (202) ELT 7 (SC) 13. We find that these decisions support the submissions. We have already seen that in the case of SIDBI, the facts were not discussed in detail, statutory provisions were different and the submissions were different. 14. The two decisions of the European Court cited by the ld.Counsel are not appropriate since they do not really relate to Banking & other Financial Services. Further without comparing statutory provisions, it will not be appropriate to rely upon the decision of the European Court, for Indian cases. The appellants also relied upon the decision of Hon'ble High Court of Madras in the case of Edupuganti Pitchayya & Ors Vs Gonuguntla Venkata Ranga Row, dt.20.10.43. In that case, Hon'....
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....ase to exist and loan also continues. Therefore, resetting of interest rate can be definitely considered as a service rendered by the appellant in relation to lending and is covered by Service Tax definition. It was submitted by the appellant that resetting charges were not being collected by them after 2004-2005. However, it was submitted by the ld.A.R. appearing for the Department that in the financial year 2005-06, 2006-07, 2007-08, the appellant had changed the head of income from resetting charges to additional interest. We find that this submission was not made before the original adjudicating authority and further we also find that in Para 5 wherein the Service Tax liability has been worked out in the table, in the first year, it has been shown as reset charges whereas in the year 2005-06, it has been shown as additional interest charges. In the year 2006-07 and 2007-08, it has been specifically indicated as additional interest (prepayment). This gives an impression that contrary to the submission made by the ld.A.R. appearing for the Department, the Department's contention was that in the year after 2005-06, the appellant did not collect any reset charges. In any case, in v....
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.... time will not change the head of income from service charges to interest. 18.4 Interest is nothing but the time-compensation for somebody's money being retained by somebody else. The longer the period of retention, the higher will be the interest amount. In this background, the prepayment charges can never be considered to be in the nature of interest as prepayment only means payment before time. This should ideally result in refund of interest and not the demand for more interest because the borrowed money is being paid back before time. 19.1 The agreements of lending entered prior to 10.9.04 by the appellants are not chargeable to Service Tax. 19.2 Appellant has contended that in the clarification issued by the Board vide Letter F.No.B.11/1/2001-TRU, dt.9.7.01, it has been held that the Service Tax would not be applicable on hirepurchase agreements entered prior to imposition of levy. In their case, all charges have been collected in respect of lending arrangement which has been entered into prior to 10.9.04, when the lending services were made taxable. 19.3 In the case of lease or hire purchase arrangements, Service Tax is leviable on lease management fee/processing....
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....he services received from another department. Telecommunication department used to provide telecommunication services to other departments and other departments paid for the telecom services rendered and even for the services rendered by Railways, Postal and other departments, payments are made. Therefore, the fact that the appellant is a wholly owned government company, does not mean that they need not have to follow the law of land or take it lightly and plead ignorance of law or being a wholly a government company, seek differential treatment. The fact remains that the appellant was required to declare the income received once the las was amended and they were required to seek clarification, if there was doubt. Even if they felt that the activity did not attract Service Tax, ST-3 returns should have been filed/or Department addressed intimating that these services are not liable to tax. In this case, the submission made by the ld.A.R. that plea of bonafide has to be considered in the light of decision of the Tribunal in the case of SPIE CAPAG S.A. Vs CCE Mumbai 2009 (243) ELT 50 (Tri-Mum), is appropriate. In that case, while dealing with the plea of bonafide belief, the Tribunal....