2014 (12) TMI 668 - AT - Service Tax

Stay application - banking and financial services - Conflicting decisions - Held that - Tax liability has been confirmed on the ground that the appellant has accepted pre-payment charges towards the settlement of the loan extended to their customers. We find that in the appellant s own case, the co-ordinate bench of the Tribunal has taken a view holding that such activity of fore-closure of the loan does not attract Service Tax liability. This bench in the case of HUDCO has taken a diagonically opposite view after considering the judgment in the case of Small Industries & Development Bank of India (2011 (1) TMI 495 - CESTAT, NEW DELHI). Since there are two different views expressed by two different benches, we are constrained to refer the matter to Hon ble President for constituting a Larger Bench to decide as to which view is correct. Since the appellant has already deposited the amount of Service Tax liability, interest and 25% of the tax liability and as we have referred the matter to Larger Bench, we consider the amount deposited by the appellant as enough deposit to hear and dispose the appeal on merit. Accordingly, application for waiver of pre-deposit of the balance amounts involved is allowed and recovery thereof stayed till the disposal of appeal. - Stay granted.

Summary

Issues:
1. Conflict of views on the taxability of pre-payment and re-payment charges of a loan.
2. Request for reference to Larger Bench to resolve conflicting views.
3. Consideration of the deposited amount for waiver and stay of recovery.

Analysis:
1. The appellant had already deposited the entire Service Tax liability, interest, and 25% of the tax liability as penalty, while contesting the issue on merit. The counsel referred to a Delhi Bench decision in their favor regarding non-taxability of pre-payment and re-payment charges of a loan settled prior to maturity. However, a different view was taken by a different bench in the case of Housing & Development Corporation Ltd (HUDCO), leading to conflicting interpretations on the same issue.

2. Both the appellant's case and the HUDCO case presented divergent opinions on whether fore-closure of a loan attracts Service Tax liability. The Tribunal acknowledged the conflicting views and decided to refer the matter to the Honorable President for constituting a Larger Bench to determine the correct interpretation. The decision to refer the matter was influenced by the consideration of the judgment in the case of Small Industries & Development Bank of India.

3. In light of the reference to the Larger Bench, the Registry was directed to present the case along with relevant case laws to the Honorable President. Since the appellant had already made substantial deposits related to the Service Tax liability, interest, and penalty, and considering the referral to the Larger Bench, the Tribunal deemed the deposited amount sufficient for hearing and disposing of the appeal on merit. Consequently, the application for waiver of pre-deposit of the remaining amounts was approved, and the recovery of those amounts was stayed pending the appeal's resolution.