AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 8
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....Finance Act, 1994 but the appellant has not paid Service Tax. Hence Show Cause Notice (SCN), dated 29.10.2012 was issued demanding Service Tax of Rs.12,76,769/-. After due process of law, the Ld. Adjudicating Authority passed Order in Original (OIO), dated 27.06.2014, confirming the demand of service tax under section 73 along with interest under sec. 75 and imposed penalties under section 77 and 78 of the Act. The appeal preferred by the appellant before the Ld. Commissioner (Appeals) came to be rejected except for setting aside the penalty imposed under section 77. Hence the present appeal. 3. The learned Advocate Shri Arun Prasad appeared for the appellant and Ld. Authorized Representative Smt. O.M. Reena appeared for the respondent. 3.1 Shri Arun Prasad the Ld. Counsel for the appellant submitted as follows: A. The appellant is a nationalised bank registered under "Banking and Other Financial Services" and complying with statutory requirements. B. In the ordinary course of lending, interest accrues from the date of availability of the loan. Where the borrower delays drawdown after sanction, the lender suffers loss of interest as the sanctioned funds remain idle thou....
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....s entitled to cum-tax benefit and waiver of penalty under Section 80, as the appellant acted under bona fide belief and reasonable cause. He prayed that the appeal may be allowed. 3. Smt. O.M. Reena, Ld. Authorised Representative for the respondent, submitted that Punjab National Bank collected "commitment charges" for keeping available the undisbursed portion of sanctioned loan limits. SCN dated 09/10/2012 proposed service tax on such charges for April 2007-March 2012 as consideration for "lending" under Banking and Financial Services (Section 65(12)), taxable under Section 65(105)(zm) of the Finance Act, 1994. As the charges were not "interest", they were treated as service charges for keeping funds available. Extended period/suppression was invoked as the charges were not reflected in ST-3 returns and were disclosed only in response to the Department's letter dated 18/04/2012. In her oral and written submissions put forward during the oral hearing she summarised the orders and leading judgments on the matter as under: A) OIO (Original Adjudicating Authority): Relying mainly on HUDCO Ltd Vs CCE, 2012 (26) STR 531 (Tri.-Ahmd), held that charges collected in relation to le....
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.... which would help bring clarity to the issues involved. 5.1 Section 65(105)(zm) defines the taxable service: "Section 65 - (105) "taxable service" means any [service provided or to be provided ] - . . . . [(zm)[to any person], by a banking company or a financial institution including a non-banking financial company or any other body corporate [or commercial concern], in relation to banking and other financial services;]" The amendments made to the section do not affect our discourse and are hence not discussed. 5.2 Section 65(12) defines the classification heading "Banking and other financial services": "(12) "Banking and other financial services" means, (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, namely:- (i) financial leasing services including equipment leasing and hire purchase by a body corporate; (ii) credit card services; (iii) merchant banking services; (iv) securities and foreign exchange (forex) broking, and purchase or sale of foreign currency includin....
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....ch is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation.-For the purposes of this section,- (a) "consideration" includes any amount that is payable for the taxable services provided or to be provided; (b) [ * * * ] (c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called "Suspense account" or by any other name, in the bo....
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....e of an explicit agreement. Fowler v. Smith, 2 Cal. 568; Vernon's Ann. Civ. St. art. 5069." 8. As held by the Hon'ble Gauhati High Court in Magus Construction Pvt. Ltd. Vs Union of India [2008 (11) S.T.R. 225 (Gau.)], "29. In the light of the various statutory definitions of "service", one can safely define "service" as an act of helpful activity, an act of doing something useful, rendering assistance or help. Service does not involve supply of goods; "service" rather connotes transformation of use/user of goods as a result of voluntary intervention of "service provider" and is an intangible commodity in the form of human effort. To have "service", there must be a "service provider" rendering services to some other person(s), who shall be recipient of such "service". 30. Under the Finance Act, 1994, "service tax" is levied on "taxable service" only and not on "service provider". A "service provider" is only a means for deposit of the "service tax" to the credit of the Central Government. Although the term "service receiver" has not been defined in the Finance Act, 1994, the "service receiver" is a person, who receives or avails the services provided by a "s....
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....ts services statedly to gives the borrower time to avail the sanctioned loan at a later date. The payment, which is towards the assured performance of a service, cannot be considered as an interest. They are at best in the nature of a charge to assure future service. 9.3 Rule 6(2)(iv) of the Service Tax (Determination of Value) Rules, 2006 carves out from the taxable value only "interest on delayed payment of consideration for provision of services". It does not, as suggested by the appellant, exclude "interest on loans". Being in the nature of an exclusion, the provision requires strict construction. It is the appellant's submission that, where the borrower delays drawdown of the loan after sanction, the lender suffers loss of interest, as the sanctioned funds remain idle though contractually committed. To compensate for such loss, banks levy charges on the undisbursed portion of sanctioned loans till future disbursement. Thereby, a charge that commits the lender to disburse a sanctioned loan at a later date, even after suffering a loss of interest, does not fit the definition of being an 'interest' by itself. The charge is not on the money lent; it is on the money that sits id....
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.... Appellant, without raising any invoice. The said service of lending was a taxable service, w.e.f 11.09.2004 under the category of "Banking and Other Financial Services". However appellants had not taken any registration or paid service tax in respect of the services so rendered. *****. *****. ***** 3.1 In the appeal filed appellants have challenged the impugned order stating that - Commitment charges/ fees received by them are not distinct and separate from interest and hence should not have formed the part of taxable service under the category of "Banking and Other Financial Services." - The amounts charged by the appellant to CCIL for establishing the line of credit at Rs 3,75,000/- per quarter is in lieu of interest which the appellant would have earned had CCIL utilized the facility and as CCIL had not utilized the facility, in the hands of appellant these so named commitment fees charges are in fact, in terms of banking practices, minimum interest and not bank charges. - The facility so extended by the appellant is disaster management facility only and cannot be termed as lending. This is further strengthened by the fact that CCIL ....
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.... in favour of CCIL against agreed consideration. Thus in our view the findings recorded by the Commissioner in this respect cannot be faulted with. (emphasis added) 11. Similarly, the Ahmedabad Bench of this Tribunal in M/s HOUSING & DEVELOPMENT CORPORATION LTD (HUDCO) Versus CST, AHMEDABAD [2011 (11) TMI 95 - CESTAT, AHMEDABAD / 2012 (26) S.T.R. 531 (Tri. - Ahmd.)], which was also cited in the impugned order, examined bank charges called "prepayment charges" and "reset charges", which are akin to "commitment Charges" and held: "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 interest income and income tax department also treats it as interest income. In case of finance on fixed interest loan, rate of interest remains fixed for a period of 5 years. But, if the bor....
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.... of SIDBI as far as resetting charges are concerned. Further, in the case of resetting, the relationship between the lender and the borrower does not cease 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. . . . . In any case, in view of the conclusion that we have reached that the service tax is payable on reset charges as well as prepayment charges, we consider that it is not necessary for us to go into this aspect." (emphasis added) 12. The Appellant had placed reliance in the case of IN RE AMALGAMATIONS PVT LTD. 2012 (28) S.T.R. 641 (Commr. Appl.), which pertains to the First Appellate Authority and is non-binding. More so in the light of the elaborate discussions above. The other judgments cited relate to demand for duty under the extended period and are not being discussed, in the light of our decision below. 13. We find that the period of demand in this case is from April 2007 to March, 2012. The dispute involves an interpretational issue as is clear from the clarification issued by TRU vide CBEC Circular No. 137/....
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....isbursed loan amount, as agreed upon with the borrower. This is known as the commitment charges and are paid by the borrower as compensation for keeping a line of credit open in assurance that the bank will supply the loan at the specified future date and at the contracted interest rate, regardless of conditions in the financial and credit markets. It is the contention of the Appellant that commitment charges are nothing but interest on the unavailed portion of the loan sanctioned and does not attract service tax and that Rule 6(2)(iv) of the Service Tax (Determination of Value) Rules, 2006 as applicable for the relevant period, and which deals with cases in which the commission, costs, etc will be included or excluded for valuation of any service, specifically excluded "interest" on loans. 17. The Department, however, is of the view that any amount collected by the service provider on account of lending is either interest or service charges. Further, according to the Department, the commitment charges cannot be considered to be interest, and therefore are to be treated as consideration for the service provided. Hence the Department demanded service tax on the commitment charges....
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....ges are in the nature of interest charges or liquidated damages, and has held that commitment charges are liable to service tax. 20. Thus, it is seen that two benches of the Tribunal have, in the case of two different Government Banks (PSU), taken diametrically opposing views on whether commitment charges are exigible to service tax in the context of a bank making available a loan to a borrower. Incidentally, it is also noticed that in the decision rendered in Bank of Baroda v CST, Mumbai, 2021 (45) G.S.T.L 381 (Tri-Mumbai), the earlier single bench decision of the Appellant's case was noted, however, the Division Bench decision of 2018, appears to have gone unnoticed. 21. At this juncture, it is apposite to notice that the Honourable Supreme Court in Lala Shri Bhagwan v. Ram Chandra MANU/SC/0320/1965: 1965]3SCR218, speaking through Gajendragadkar, C.J., observed: "It is hardly necessary to emphasise that considerations of judicial propriety and decorum require that if a learned single Judge hearing a matter is inclined to take the view that the earlier decisions of the High Court, whether of a Division Bench or of a single Judge, need to be re- considered, he should....
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....ot the personality of the members constituting it. If a Bench of the Tribunal wishes to take a view different from the one taken by the earlier Bench, the propriety demands that it should place the matter before the President of the Tribunal so that the case is referred to a Larger Bench, for which provision exists in the Act itself. In this behalf, the following observations by a three Judge Bench of this Court in Sub-Inspector Rooplal & Anr. v. Lt. Governor & Ors., (2000) 1 SCC 644 are quite apposite: "At the outset, we must express our serious dissatisfaction in regard to the manner in which a Coordinate Bench of the Tribunal has overruled, in effect, an earlier judgment of another Coordinate Bench of the same Tribunal. This is opposed to all principles of judicial discipline. If at all, the subsequent Bench of the Tribunal was of the opinion that the earlier view taken by the Coordinate Bench of the same Tribunal was incorrect, it ought to have referred the matter to a Larger Bench so that the difference of opinion between the two Coordinate Benches on the same point could have been avoided. It is not as if the latter Bench was unaware of the judgment of the earlier Be....
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....curiam. A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a Court of a coordinate jurisdiction which covered the case before it, or when it has acted in ignorance of a decision of the House of Lords. In the former case it must decide which decision to follow, and in the latter it is bound by the decision of the House of Lords." In Virayya v. Venkata Subbayya it has been held by the Andhra High Court that under the circumstances aforesaid the Bench is free to adopt that view which is in accordance with justice and legal principles after taking into consideration the views expressed in the two conflicting Benches, vide also the decision of the Nagpur High Court in Bilimoria v. Central Bank of India. The better course would be for the Bench hearing the case to refer the matter to a Full Bench in view of the conflicting authorities without taking upon itself to decide whether it should follow the one Bench decision or the other. We have no doubt that when such situations arise, the Bench hearing cases would refer the matter for the decision of a Full Court." (emphasis supplied) 25. For the aforesaid reasons, in li....
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....e Tax Vs M/S Monsanto Manufacturer Pvt. Ltd. [2014 (35) STR 177 (ALL) / E.T.A. General Pvt. Ltd. Vs Additional Commissioner of C. Ex., Chennai [2016 (44) S.T.R. 409 Mad.] - a clearly laid down legal principle respectfully implemented by this very Bench in a number of Orders - see: Nagarjuna Hospital Ltd. Vs Commissioner of Customs (General) - FINAL ORDER NO. 40616/2026, Dated: 02.02.2026 / M/s. RU's Marketing and Creative Unit Vs Commissioner of GST & Central Excise - FINAL ORDER No.40460/2026, Dated: 02.04.2026] (b) having not been made a part of the Appeal Memorandum or being pressed at the Bar by the appellant, though being in their own case even after being cited by the respondent-Revenue. Further not citing the judgment even in their final 'written arguments' submitted on 05.01.2026 after the oral hearing despite our specific query recorded in Daily Order dated 09.12.2025. Thereby not relying on the said judgment for reasons best known to them. would still have binding precedential value on other coordinate benches? (II) If the issue at (I) above is answered in the affirmative, then; i. Whether in the light of the decision of the Division Bench in the case of....