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2019 (8) TMI 1029 - AT - Service TaxValuation - nature of pre-pay penalty towards foreclosure of credit facility (loan) - in the nature of interest or not - Banking and Financial Services - inclusion of commitment charges in assessable value - appellant submitted that the commitment charges are in nature of interest charges or the damage charges made by them from their customer/ client for making available the said credit facility available to them. Since these are in nature of interest/ damages they are not to be included in the value of taxable services provided by them - time limitation - HELD THAT - The Commitment Charges are neither the interest charges as claimed by the appellant nor the liquidated damages. The clear distinction has been drawn in respect of interest charges and the commitment charges. Interest charges are in respect of the amount availed or drawn /utilized from the clean line of credit facility made available by the appellant to CCIL, whereas commitment charges are in respect of un-availed portion of the credit limit. These charges are also in not nature of liquidated damages but are towards making available the clean line of credit facility available to their client/ customer. There are no merits in the submissions of the appellant that the commitment fees charged by them for extend clean line of credit facility to CCIL is interest charge or in nature of liquidated damages. The reliance placed by the counsel for appellant on the decision of this tribunal in case of COLLR. OF C. EX., BOMBAY VERSUS RAM DECORATIVE INDUSTRIES LIMITED 1998 (2) TMI 402 - CEGAT, NEW DELHI is not of any help. In that decision the tribunal was dealing with goods which are tangible in nature and were produced for sale to the customer on an agreed price. The charges which were collected towards the goods not actually lifted by the buyer were held not to be added to the value of the goods that were actually lifted by the buyer - In the case of services, which are intangible in nature the same principle cannot apply. For levy of liquidated damages the existence of specific contract, whose performance has been vitiated by the actions of the parties to the contract need to be established. In the present case appellants have not been able to establish existence of such a contract whereby CCIL had agreed to borrow the said amount of ₹ 100 Crores from them. On the contrary as banking industry product Clear Line of Credit has been sanctioned by the appellant in favour of CCIL against agreed consideration. Thus the findings recorded by the Commissioner in this respect cannot be faulted with. Time Limitation - HELD THAT - The only ground urged by the appellant is that was confusion prevailing in respect of levy of Service Tax in respect of the Commitment Charges, which lead to delay in payment of taxes. There are no merits in the submissions of the Appellant. Appellants have not shown any bonafide reason to show that they entertained such a belief. Further if they claim the issue was clarified by CBEC only in 2011, then what made them pay the service tax in the year 2006. The arguments advanced by the appellants do not establish the existence of such a bonafide belief - demand upheld by invoking extended period of limitation. Also the demand made in respect of the interest at appropriate rate under Section 75 is upheld - however penalties set aside. Appeal allowed in part.
Issues Involved:
1. Classification of Commitment Charges as Taxable Service. 2. Applicability of Service Tax on Commitment Charges. 3. Nature of Commitment Charges (Interest or Liquidated Damages). 4. Invocation of Extended Period of Limitation. 5. Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994. 6. Applicability of Cum Tax Benefit under Section 67(2). 7. Applicability of Section 80 for Waiver of Penalties. Detailed Analysis: 1. Classification of Commitment Charges as Taxable Service: The tribunal examined whether the commitment charges received by the appellant for extending a line of credit to Clearing Corporation of India Ltd (CCIL) fall under taxable services as defined by Section 65(12) of the Finance Act, 1994. It was held that the commitment charges are distinct from interest and are part of the taxable service charges liable to service tax. The tribunal referenced the definition from “investopedia.com” and established banking practices to determine that commitment charges are fees charged for making a line of credit available, not interest. 2. Applicability of Service Tax on Commitment Charges: The tribunal upheld the demand for service tax on commitment charges. It was noted that the commitment charges are integrally connected with the lending service, which falls under taxable services. The tribunal referenced the decision in Punjab National Bank [2015 (38) STR 498 (T-Del)] and HUDCO [2012 (26) STR 531 (T-Ahd)] to support its conclusion that commitment charges are subject to service tax. 3. Nature of Commitment Charges (Interest or Liquidated Damages): The tribunal rejected the appellant’s contention that commitment charges are in the nature of interest or liquidated damages. It was clarified that commitment charges are fees for making a line of credit available and are not related to the actual utilization of the credit. The tribunal distinguished between interest, which is charged on the utilized portion of the loan, and commitment charges, which are charged on the unutilized portion. 4. Invocation of Extended Period of Limitation: The tribunal upheld the invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994, citing that the appellant had not shown any bonafide reason for the delay in payment of service tax. The tribunal referenced the HUDCO case to reject the appellant’s argument that being a public sector bank implies no malafide intentions. 5. Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994: The tribunal held that penalties under Sections 76, 77, and 78 were justified due to the appellant’s failure to register and pay service tax. However, considering the appellant's status as a public sector bank and the payment of tax with interest before the issuance of the show cause notice, the tribunal invoked Section 80 to set aside the penalties, referencing the Karnataka High Court’s decision in Adecco Flexione Workforce [2012 (26) STR 3 (Kar)]. 6. Applicability of Cum Tax Benefit under Section 67(2): The tribunal did not find merit in the appellant’s claim for cum tax benefit under Section 67(2), as it was not substantiated with sufficient evidence or legal backing. 7. Applicability of Section 80 for Waiver of Penalties: The tribunal invoked Section 80 of the Finance Act, 1994, to waive the penalties imposed under Sections 76, 77, and 78, considering the appellant's status as a public sector bank and their prompt payment of service tax with interest before the issuance of the show cause notice. Conclusion: The appeal was allowed to the extent of setting aside the penalties under Sections 76, 77, and 78. The demand for service tax and interest was upheld. The tribunal emphasized the distinction between commitment charges and interest, upheld the invocation of the extended period of limitation, and invoked Section 80 to waive penalties due to the appellant’s compliance before the show cause notice.
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