TaxTMI 
TaxTMI 
2022 (9) TMI 1062
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....vice tax records of the respondent for the years 2007-2008 to 2009-2010 was conducted by the officers of Directorate General, Audit. It was noticed that the respondent was providing loans for energy and energy efficiency projects, State Electricity Boards and private parties and even though the respondent had earned Rs. 08,94,64,916/- as premium of interest for restructuring of loans in 2008-2009 and Rs. 06,76,027/- during 2007- 2008 but the respondent treated these amount as interest income and did not pay service tax on it though such charges were leviable to service tax as they were received while providing 'banking and other financial services'. Accordingly, a show cause notice dated 31.01.2011 was issued to the respondent proposing a demand of service tax of Rs. 01,11,57,422/- along with interest and applicable penalties. The Commissioner, by order dated 13.12.2011, dropped the whole demand initiated against the respondent. The Department has filed this appeal against the aforesaid order dated 13.12.2011. 3. The issue involved in this appeal is whether the Commissioner was justified in dropping the demand raised against the respondent by treating the premium on interest restr....
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....the value of service provided to the borrowers. The method of quantification of the 'interest restructuring premium' amount charged does not make it akin to 'interest' on a loan. It was only a 'factoring-in' of loss to the service provider respondent while estimating the amount of consideration as value of the service provided in respect of the interest restructuring allowed in relation to the loan lent to the borrower; and (v) The Commissioner failed to appreciate that the 'interest restructuring facility', whereby the borrower is allowed to swap the higher rate of interest with the lower rate of interest is a facility provided to the borrower to take the advantage of the prevailing low interest rate, if any, and thereby bringing down cost of borrowing the loan. 5. Shri Atul Gupta, learned chartered accountant, appearing for the respondent, however, supported the impugned order and made the following submissions: (i) Interest restructuring charges are outside the ambit of 'banking and other financial services'; (ii) Premium received towards interest restructuring are in nature of interest; (iii) Even if it is considered, as is the case of the D....
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....scounting facility, safe deposit locker, safe vaults; operation of bank accounts; (b) Foreign exchange broking and purchase or sale of foreign currency, including money changing provided by a foreign exchange broker or an authorised dealer in foreign exchange or an authorised money changer, other than those covered under sub-clause (a); Explanation-For the purpose of this clause, it is hereby declare that "purchase or sale of foreign currency, including money exchanging" includes purchase or sale of foreign currency, whether or not a consideration for such purchase or sale, as the case may be, is specified separately. [Section 65(12)]" 10. This service is made taxable under section 65(105)(zm) of the Finance Act and the said section is reproduced below: "Section 65(105)(zm) (a) Taxable service means any service provided or to be provided to any person, by a banking company or a financial institution including a non-banking financial company, or anybody corporate or commercial concern in relation to banking and other financial services." 11. The contention of the Department is that restructuring premium charged by the respondent falls under 'lending' and,....
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....iii) of these Directions which is fully or partly secured standard and sub-standard asset and to the loan, which is subjected to restructuring and/or rescheduling and/or renegotiation of terms. (ii) ***** (2) Restructuring, reschedulement or renegotiation of terms of infrastructure loan The non-banking financial companies may, not more than once, restructure or reschedule or renegotiate the terms of infrastructure loan agreement as per the policy framework laid down by the Board of Directors of the company under the following stages: ***** (5) Adjustment of interest Where rescheduling or renegotiation or restructuring involves a reduction in the rate of interest, the interest adjustment shall be computed by taking the difference between the rate of interest as currently applicable to infrastructure loan (as adjusted for the risk rating applicable to the borrower) and the reduced rate and aggregating the present value (discounted at the rate currently applicable to infrastructure loan, adjusted for risk enhancement) of the future interest payable so stipulated in the restructuring or rescheduling or renegotiation proposal." (emphasis supplied) 15. The above extract sho....
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....ected as Premium from Mr. A on account of Interest Restructuring 1,634.94 *Discounting Factor is derived by the following formulae - [1/(1+r)n]" 17. It can be seen from the illustration above, that respondent was to receive total interest of Rs. 10,800 in next 3 years at the original interest rate of 9% as agreed upon but due to lowering down the interest rate to 6%, respondent will now receive Rs. 07,200 at 6% rate of interest in next 3 years. Therefore, to compensate for the loss of interest that is going to be caused to the respondent for reduction in rate of interest due to interest restructuring, respondent computed net present value of such loss (which comes out to Rs. 03,269.88/-) and collected 50% of the same as premium for interest restructuring while remaining 50% is the benefit gained by the customer due to interest restructuring. 18. Thus, premium so charged by the respondent from its customers due to interest restructuring is nothing but net present value of loss of interest that will be caused to the respondent. 19. It is, therefore, not possible to accept the contention of the Department that restructuring premium charged by the respondent would fall under 'le....