2023-VIL-260-CESTAT-DEL-ST

SERVICE TAX CESTAT Cases

Service Tax – Sections 65(12), 67 and 80 of the Finance Act, 1994 – Sale of loan application forms – Tax liability – Appellant/State Financial Corporation has been formed for non-business/non-commercial purposes to facilitate growth of industry in State – Appellant was registered with Service Tax Department for providing "Banking and other Financial Services" as defined in Section 65(12) of the Act – Department issued show cause notice proposing demand of service tax to Appellant – Lower authorities confirmed demand proposed in show cause notice – Whether Appellant is liable to pay service tax on sale of loan application forms' – HELD – Appellant has been constituted for providing long term financial support to tiny, small and medium scale industries in State – Appellant has a network of branch offices wherein entrepreneurs can approach for loan – Person interested in availing loan approach one of facilitating centers and purchased loan forms – In various cases, Tribunal held that amount collected for sale of forms, prospectus etc. would not be includible in taxable value for levy of service tax – Sale of loan application forms is not a taxable service and therefore, no demand is leviable on such sale of loan forms – Demand raised in this regard is set aside – Appeal partly allowed - Collection of service charges – Taxability – Whether service charges collected from customers under Seed Capital Loan Scheme is leviable to service tax or not' – HELD – Perusal of Seed Capital Loan Scheme document make it clear that seed capital will carry a nominal service charge at 1% per annum for first five years and interest at 10% per annum thereafter – From the above, it is amply clear that though the term used in ‘service charge’ but the underlying nature of 1% and 10% is nothing but interest on seed capital loan, extended to entrepreneurs – It is a settled principle of law that interest on loans is not taxable to service tax – Service charges collected from customers under Seed Capital Loan Scheme is not liable to service tax - Premature payment of loan – Collection of foreclosure charges – Demand of tax – Whether service charges for pre-payment or foreclosure of loan amount by customer can be treated as taxable service' – HELD – Any amount charged which has no nexus with taxable service and is not a consideration for service provided does not become part of value which is taxable under Section 67 of the Act – Granting of loans is a business of Appellant and if loan is prepaid, Appellant may have to suffer loss – To overcome this situation, Appellant has the power and authority to levy prepayment/foreclosure premium – Foreclosure charges are not a consideration for performance of lending services, but are imposed as a condition of contract to compensate for loss of “expectations interest” when loan agreement is terminated prematurely – Foreclosure charges collected by banks and non-banking financial companies on premature termination of loans are not leviable to service tax under “banking and other financial services” – Service charges for pre-payment or foreclosure of loan amount by customer cannot be treated as taxable service and is not chargeable to service tax – Demand raised in this regard is set aside - Sanction of loans – Taxability of service charges – Whether Appellant is liable to pay service tax on service charges collected against Working Capital Term Loans (WCTL) sanctioned to customers' – HELD – Perusal of scheme for short term financing of WCTL reveals that scheme was meant for all small scale and medium scale industrial units financed by Appellant – Scheme document has clearly differentiated between interest liable to be charged on such loans and service charges on such loan – Service charges of 1% indicated separately clearly shows that this amount is a consideration for services being provided by Appellant to borrowers – Said service charge is a financial charge on account of providing financial services of loans and advances – Service tax is leviable on service charge realized on WCTL by Appellant – Demand raised in this regard is confirmed - Waiver of penalty – Whether Commissioner (Appeals) has erred in waiving penalty imposed under Section 80 of the Act' – HELD – Allegation of willful suppression of facts with an intention to evade duty payment cannot be made against Appellant – There was certainly a bonafide belief of Appellant that no service tax was leviable on financial services provided by them – Waiver of penalty under Section 80 of the Act has been correctly invoked by Commissioner (Appeals)

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