TaxTMI 
TaxTMI 
2023 (3) TMI 538
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....tion 65(12) of the Finance Act, 1994 and are taxable under section 65(105) (zm) of the Act. During the course of audit of service tax records, the service tax department observed the following: (i) The appellant was collecting rent of its immovable property let out for commercial use. (ii) The appellant was selling loan application forms, on which no service tax was paid. (iii) The appellant was collecting service charges against seed capital assistance sanctioned to the new entrepreneurs. (iv) The appellant was collecting financial/foreclosure charges on account of premature repayment of loans by the borrowers. (v) The appellant had been collecting financial charges on account of service charges against Working Capital Term Loans. 3. Thereafter, the department issued a show cause notice dated 18.10.2010 for demanding aggregate service tax of Rs.48,51,115/- in respect of above issues and sought to impose penalty under Sections 76, 77 and 78 of the Act. Vide the Order-in-Original No. 113 (ST) JPI/ 2012-ADC dated 29.11.2012, the demand was confirmed and equal penalty was imposed. The appellant filed an appeal before the Commissioner (Appeals) who set aside the service....
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....Assistance Scheme The learned Counsel submits that the appellant acts as an agent of IDBI, for the implementation of the Seed Capital Scheme of IDBI. The Scheme is operated by notified State Industrial Development Corporations (SIDCS) and State Financial Corporations (SFCs) as agents of IDBI. The appellant being a State Financial Corporation of the Rajasthan Government helps the new entrepreneurs to start or enlarge their industrial activity through sanctions of seed capital. The main beneficiaries are new entrepreneurs or the small scale industries. Learned Counsel drew the attention of the Bench to Seed Capital Scheme and specifically to paragraph 4 of the scheme which provides that the amount of seed capital assistance per concern shall not exceed 10% of project cost and is subject to ceiling of Rs.15 lacs. As per paragraph 7(i) of the said Scheme, seed capital loan will carry a nominal service charges of 1% per annum for the first five years and interest @10% per annum thereafter. 3/4th of 1% on the amount disbursed by IDBI to the State Financial Corporation for the first five years and thereafter 9.5% per annum was to be deposited with IDBI, as interest. It is well settl....
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....f Legislature, it cannot be considered a Governmental authority. He relied on the decision of M/s RIICO LTD Vs. Commissioner of C. Ex., Jaipur-I 2018 (10) G.S.T.L. 92 (Tri.- Del). The relevant paragraphs are as follows: "22. However, regarding other services rendered by the appellant to the allottees in the industrial areas, we find no exemption is available. The claim of the appellant that they have undertaken the said maintenance as a Governmental authority and, hence, not liable to tax, is not tenable. The appellant is a corporate company, allotting industrial plots for commercial purpose. As a part of the arrangement of developing industrial areas, they have undertaken certain maintenance works in these industrial areas, which is in furtherance of commercial activity. There is no exemption available for such services prior to 1-4-2014. For the period 1-7-2012 to 30-1-2014 [negative list regime], the appellants claimed that the services rendered are not liable to tax as they are a Governmental authority in terms of Sl. No. 39 of Notification No. 25/2012-S.T., dated 20-6-2012. We note that services by Governmental authorities by way of any activity in relation to any func....
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..... As such we hold that appellant is liable to Service Tax for the period prior to 30-1-2004 as no exemption is available to them." Therefore, all the activities/services performed by the appellant are liable to be taxed unless there is implicit remission examination. 7. We have heard Shri S C Kamra & Shri N D Dubey, Advocates appearing for the appellant and Dr. Radhe Tallo, Authorized Representative for the Department. 8. So the issues for consideration before us are as tabulated below: Sl.No. Nature of service Service Tax (including cess) (Rs.) demand Current appeal status 1. Renting of immovable property - 01.06.2007 to 31.03.2009 1,58.377 Dropped and accepted by the Dept. 2. Renting of immovable property- 01.04.2009 to 31.08.2009 16,117 This issue is not being agitated by the Appellant 3. Sale of Loan Application forms 1,13,606 Not accepted, hence agitated 4. Interest/service charges collected from customers under Seed Capital Loan Scheme. 3,32,612 Not accepted, hence agitated 5. Service charges for pre-payment / foreclosure of loan account by the customers before the agreed term. 25,30,960 Not accepted, hence agitated 6. Service charges a....
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....urt in the appeal filed by the Department viz., Commissioner of Central Excise & Service Tax, Indore vs. Cerebral Learning Solutions Pvt Ltd. 2022 (1) Centax 7 (S.C.). Accordingly, we hold that the sale of loan application forms is not a taxable service and therefore, no demand is leviable on such sale of loan forms. (ii) Seed Capital Assistance Scheme: We have carefully gone through Seed Capital Loan Scheme document. Paragraph 7 under heading terms and conditions of the assistance, states the following: "(i) Rate of Interest The seed capital (soft loan) will carry a nominal service charge at 1% per annum for the first five years and interest at 10% per annum thereafter. IDBI would levy service charge of three-fourth of 1% on the amount disbursed to SDICs/ SFCs from the date of disbursement for the first 5 years and 9.5% per annum thereafter." From the above, it is amply clear that though the term used in 'service charge' but the underlying nature of the 1% and 10% is nothing but interest on the seed capital loan, extended to the entrepreneurs. Therefore the same is not liable to service tax. As observed, it is a settled principle of law that interest on loans is not taxabl....
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....e Supreme Court in Commissioner of Service Tax v. M/s. Bhayana Builders [2018 (2) TMI 1325 = 2018 (10) G.S.T.L. 118 (S.C.)], while deciding the appeal filed by the Department against the aforesaid decision of the Tribunal, also explained the scope of Section 67 of the Act, both before and after the amendment, in the following words : "The amount charged should be for "for such service provided" : Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service provided" the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount "cha....
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....of loans or advances is one of the business of the Corporation. As stated above, the Corporation borrows funds from the financial institution at the prevailing rate of interest. If an account is prepaid/foreclosure when the interest rates are falling, the Corporation may have to suffer loss. To overcome this situation, if a premium is charged on the outstanding loan being prepaid, the same cannot be found fault with. I am of the considered view that the Corporation has the power and authority to levy prepayment/foreclosure premium." 37. The foreclosure of loan is, therefore, a material breach of contract as it curtails the loan service period unilaterally, which can prompt the promisor to claim damages. Damages can be determined by Courts or they can also be incorporated in the loan agreements and other commercial contracts so as to ensure certainty in dealings and also serve as a deterrent measure. This aspect of damage is known as liquidated damages. 54. The reference is, accordingly, answered in the following terms: "Foreclosure charges collected by the banks and non-banking financial companies on premature termination of loans are not leviable to service tax under "ban....