2019 (5) TMI 1347 - AT - Central Excise

Cenvat Credit - input services - processing fee and upfront fee for providing the facility of loan - HELD THAT - The processing fee and the up-front fee was paid to the Bank for providing Term Loan and facility of Cash Credit Account. This was necessary for running the business of the appellant/assessee and also for purchase of capital goods, required for manufacture of the final products. It is not in dispute that the assessee availed the bank loans which were very essential to meed the business expenditure and to run the business. These loans facilities are taken and the charges of the Bank under various heads have to be paid and there is no alternative to it. The Bank charges in the name of loan processing fee and up-front fee is in respect of business exigencies only and the service tax paid by them on this account falls within the ambit of activities relating to business - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Dispute regarding Service Tax on loan processing fee and upfront fee
- Eligibility of CENVAT Credit for Service Tax paid on bank charges
- Interpretation of "activities relating to business" for Service Tax applicability

Analysis:

The case involved a dispute over the Service Tax liability on a loan processing fee and upfront fee charged by a bank. The appellant had availed a Cash Credit Account and Term Loan Account from a bank, which imposed charges for providing the loan facility. The Adjudicating Authority issued a Show Cause Notice alleging that the expenditure on these charges was not related to the manufacture of final products, leading to a demand of ?70,050 along with interest and penalty. The Ld. Commissioner (Appeals) upheld the decision, prompting the appeal before the Tribunal.

During the hearing, the appellant's consultant argued that the CENVAT Credit for Service Tax paid on these charges should be allowed as the loan was utilized for business purposes, including the purchase of capital goods essential for manufacturing final products and for daily business operations. The consultant cited relevant decisions to support the claim. The Department's representative reiterated the lower authority's order.

Upon review, the Tribunal found that the bank charges for the loan facility were necessary for the appellant's business operations, including acquiring capital goods for manufacturing final products. It was acknowledged that the loans were crucial for meeting business expenses and running operations. The Tribunal determined that the charges, termed as loan processing fee and upfront fee, were directly related to business exigencies, falling under the category of "activities relating to business" for Service Tax purposes.

Consequently, the Tribunal set aside the impugned order, allowing the appeal filed by the appellant and granting consequential benefits. The decision emphasized the essential nature of the bank charges in facilitating business activities and the applicability of Service Tax on such expenses within the scope of business-related activities.