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2023 (5) TMI 302
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.....2007 01.04.2007 to 30.09.2008 OIO 38/2008 dt. 22.05.2008 07/2010 dt. 12.04.2010 SCN 17/2008 dt. 06.02.2008 (i) 272/2008 Dated 10.10.2008 (ii) 525/2009 Dated 19.10.2009 Tax involved Rs. 12,90,10,10,648/- Rs. 6,50,63,533/- Penalty Rs. 20,00,00,000/- under section 78 of the Finance Act, 1994 Rs. 200/- per day during which the failure to pay tax continues or 2% of tax, whoever is higher under Section 76 of the Finance Act, 1994. 2. Briefly the facts of the present case are that the appellant is a non-banking financial services company and is engaged in the business of providing various services to its customers like the personal loans, sales finance, auto finance, lease and cash card services and has obtained registration under Service Tax Rules, 1994 for the taxable service category of banking and other financial services. Investigation was carried out by the department alleging non payment of service tax for the services referred namely foreclosure charges, penal charges and insurance administration fees. After completion of the investigation, show cause notices were issued to the appellant proposing to demand service tax on all th....
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....pensate for the loss of interest to the appellant. Therefore, foreclosure charges are recovered as compensation for disruption of service and not towards 'lending services'. He further submitted that foreclosure charges cannot be said to be part of the 'lending service' as it has no nexus with the taxable service i.e. BOFS and hence foreclosure charges shall not be leviable to service tax. In support of this submission the Ld. Counsel placed reliance on the decision of the larger Bench of this Tribunal in the case of Commissioner of Service Tax, Chennai Vs. M/s Repco Home Finance Ltd. 2020 (7) TMI 472-(Tri.-Chen.) wherein it has been held that foreclosure charges should not be viewed as alternative mode of performance of the contract because they arise upon repudiation of specified terms of contract and are intended to compensate the injured party i.e. banks and non-banking companies. This is because alternative mode of performance still contemplates performance, whereas foreclosure is an express repudiation of the contractual terms giving rise to the levy of foreclosure charges. Further, it has been held that merely because the clause relating to damage is featuring in a contract,....
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....e auxiliary to some business activity of the client. He cited the decision of the Tribunal in the case of Sukhmani Society for Citizen Services Vs. CCE & ST, Chandigarh 2017 (47) STR 172 (Tri.- Chan.) wherein it has been held that business auxiliary service would become chargeable to service tax only if the service rendered is in relation to business of the recipient. He also submitted that the customer/borrower of the appellants are individuals who are availing personal loans and these loans have not been availed for any business or commercial purpose and therefore the service provided by the appellant cannot be classifiable under business auxiliary services. For this submissions, he relied upon the following decisions:- (i) Smart Chip Ltd. Vs. CCE 2013 (31) STR 727 (Tri.-Del.) (ii) CCE Vs. Smart Chip 2015 (39) STR 197 (M.P) (iii) Foxteq Services India Pvt. Ltd. Vs. Commr of CGST 2020 (34) GSTL 470 (Tri.-Chen.) (iv) Commr. Of Service Tax, Delhi Vs. Intertoll LCS CE Cons O & M.P. Ltd. 2013 (13) STR 477 (Tri.-Del.) (v) Commissioner of Central Excise & Service Tax, LTU, Chennai Vs. Sundaram Finance Ltd. 2017 (11) TMI 1002 (Tri.-Chen.) R....
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.... CST, Chennai Vs. Repco Home Finance Ltd. -2020 (42) GSTL 104 vide miscellaneous final order no. 40053/2020 dated 08.06.2020 decided the issue of foreclosure charges in favour of the assessee. He further submits that the decision of the larger bench at Chennai in the case of Repco Home Finance Ltd. (Supra) is contrary to the directions of the jurisdictional High Court of Madras. He also submits that the benefits of the said decision by the larger Bench should not be extended to the appellants in this case. While replying to the objections raised by the Ld. DR, Ld. Counsel for appellant submitted that Ld. DR is not legally permitted to raise this objection before this Division Bench. He further submits that once the larger bench has decided the issue of service tax on foreclosure charges, this bench is bound to follow the same unless the same is set aside by the court of competent jurisdiction. He also submits that recently Chennai Tribunal in the case of Ms. Sundaram Finance Ltd. Vs. Commissioner of GST & Central Excise, Chennai-2023 (2) TMI 896- CESTAT, Chennai decided the issue of foreclosure charges by following the larger bench decision in the case of Repco Home Finance in favo....
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....that service tax has been demanded from the appellant on the insurance administration fee received by them in respect of extending benefit to its customers of insurance policy issued by the insurance company against the risk of repayment of the loan amount and therefore the said income is includable in the taxable service of business auxiliary services under Section 65(19) of the Finance Act, 1994. The Ld. DR then took us through the definition of BAS as provided in section 65(19) of the Finance Act, 1994 and the various agreement entered into between the appellant and the various insurance companies and also the regulation of IRDAI to convass his arguments that these taxable services fall in the definition of BAS and accordingly taxable. He further submits that the Revenue has rightly invoked the extended period of limitation as the appellants have suppressed the material facts from the department with intention to evade payment of service tax. 14. We have considered the rival submissions of both the parties and perused their written submissions and various decisions relied upon by them. 15. "Before we proceed further, it would be appropriate to reproduce the definition of '....
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....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 this scope of services." 9. A taxable service is defined under Section 55(105)(zm) of Finance Act, 1994 and is as under: "Taxable service means any service provided or to be provided to any person by a banking or a financial institution including non-banking financial company or any other body corporate or commercial concern, in relation to banking and other financial service." 16. The first issue before us is whether the foreclosure charges charged by the banks and non-banking financial companies on premature termination of loan is subject to levy of service tax under BOFS as defined under section 65 (12) of the Finance Act, 1994. The larger bench of the Tribunal in the case of Repco Home Finance Ltd. cited above (Supra) has considered the issue and has held....
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....cility, bill discounting facility, safe deposit locker, safe vaults; operation of bank accounts; 49. The Bench observed that when pre-payment is proposed, the borrower is expected to make a request which has to be considered by the banks, charges have to be worked out and informed. Thus there is an element of service involved in considering the request of the borrower for pre-payment of loan, fixing of pre-payment charges collection of the same and closure of their loan. The relevant portion of the order is reproduced below : "10. Admittedly, the prepayment charges vary from borrower, according to the appellant themselves. Further, it is collected for premature closure of the loan and it is not the interest factor that is taken into account. It has to be noted that when a borrower makes a prepayment and therefore pays interest separately up to the date of payment, that amount is shown separately as interest and prepayment charges are not collected as interest, but collected as prepayment charges. Further even though the borrower has already borrowed the money and the process is over, when prepayment is proposed, borrower is expected to make a request which has to ....
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....osure charges levied by the banks and non-banking financial companies on premature termination of loans under "banking and other financial services" as defined under Section 65(12) of the Finance Act. 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 "banking and other financial services" as defined under Section 65(12) of the Finance Act." Hence by following the decision of the larger bench of the Tribunal we are of the considered view that the demand on foreclosure charges cannot sustain and requires to be set aside and we hereby do so. 17. As regards the demand of service tax on penal charges, which are recovered from the customers when the customer defaults in making timely payment of the sums as agreed in the loan agreement and in the case of dishonor of cheque by the customer, we are of the view that collection of penal charges arises on account of a separate cause of action which is independent of lending services rendered by the appellant. Here, we may refer to the decision in the case of Roh....
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....in sub-clause (i) (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management of supervision, And includes services as a commission agent, but does not include any activity that amounts to "manufacture" within the meaning of clause (f) of section 2 of the central Excise Act, 1944 (1 of 1944). After considering the definition of BAS we are of the considered view that for a transaction to be covered under the taxable category of BAS, the service rendered must be auxiliary to some business activity of the service recipient has held by this Tribunal in the case of Sukhmani Society for Citizen Services Vs. CCE & ST, Chandigarh (Supra) wherein it has been held that business auxiliary services would become chargeable to service tax only if the service is rendered in relation to business of recipient. Further, we find that in the present case the borrowers are individuals who are availing personal loans and these loans have not been availed for any business or commercial purpose and hence the service pro....