2009 (4) TMI 776 - AT - Service Tax

Summary

Issues involved: Application for waiver of predeposit of service tax under Section 73(1) along with interest under Section 75 and penalty under Section 78 of Chapter V of the Finance Act, 1994, on foreclosure charges, penal charges, and insurance administration fee collected by a non-banking financial company.

Foreclosure Charges and Penal Charges:
The applicants argued that foreclosure charges are akin to interest for premature termination of lending services and should be excluded under Rule 6(2)(iv) of Service Tax (Determination of Value) Rules, 2006. They contended that penal charges are fixed charges for dishonour of cheques and delayed payment of EMIs, also falling under the exclusion of Rule 6(2)(iv). The opposition highlighted that the applicants themselves categorized foreclosure charges as "processing fee/other charges" and that insurance administration fee is collected for various services provided to customers, making the applicants service providers falling under 'Business Auxiliary Service' under Section 65(105)(19)(iv).

Insurance Administration Fee:
Regarding the insurance administration fee, the applicants argued that it is independent of their agreement with insurance companies and should not be taxed under 'Business Auxiliary Services' as the service is provided to the insurance company, not the customers. They claimed that the fee should be considered as 'insurance auxiliary service' taxable to the insurance company. Additionally, they argued that the demand under 'Business Auxiliary Service' fails as the loans provided were personal and housing loans to individual customers, not used for business purposes.

Limitation and CENVAT Credit:
The applicants contended that part of the demand is time-barred due to their belief in non-taxability, supported by a Board's Circular recognizing divergent practices. They also highlighted their substantial CENVAT credit balance of over Rs. 40 crores, proposing to freeze 25% of the tax demand in their CENVAT credit account to protect the Revenue's interest.

Decision:
The Tribunal found the issues to be debatable, denying an unconditional waiver but accepting the offer to freeze Rs. 4,00,00,000/- in the CENVAT credit account. Upon compliance, the predeposit of the remaining tax and penalty was waived, and recovery stayed pending appeal. Non-compliance would lead to the vacation of stay and dismissal of the appeal without prior notice, with a compliance report due on 10-7-2009.