2019 (11) TMI 492 - AT - Service Tax

Levy of service tax - pre-closure charges of loan account - locker rent charges - appellant is a banking institution - period 2005-06 to 2009-10 - HELD THAT - On pre closure charges of loan account, it is found that the Ld. Counsel made a concession that he is not contesting on merit. Therefore, demand for the normal period stands upheld. Time limitation - penalty - HELD THAT - There is a force in the argument of the Ld. Counsel that the issue is not free from doubt as regard the pre closure charges will attract service tax or otherwise. Since there are conflicting judgments of this Tribunal in the case of Small Industries Development Bank of India (SIDCO) and Housing and Urban Development Corporation Ltd. (HUDCO), 2011 (11) TMI 95 - CESTAT, AHMEDABAD the matter was referred to larger bench. In this position, we observe that there is no malafide intention on the part of the appellant. Therefore, the demand for the extended period is not sustainable and the same is set aside. For the same reason, the penalty imposed under section 76 78 is also set aside by invoking section 80 of the Finance Act, 1994. Locker rent charges - HELD THAT - Though the locker rent charges was included in the service of Banking and Financial service and other services with effect from 10/09/2004, however, by virtue of notification 25/2004-ST, the value of locker rent charges received prior to 10/09/2204 is exempted - There is no dispute that the entire amount on which the Service Tax demand was raised was received prior to 10/09/2004 as can be seen in OIO. In this position, there is no doubt that amount being received prior to 10/09/2004 towards locker rent charges is covered by the exemption notification 25/2004-ST - the demand on locker rent charges is set aside. Appeal allowed in part.

Summary

Issues involved: Whether a banking institution is liable to pay service tax on pre-closure charges of a loan account and locker rent charges for the period 2005-06 to 2009-10.

Analysis:

1. Pre-closure charges of loan account:
The appellant, a banking institution, was under scrutiny for service tax liability on pre-closure charges of a loan account. The appellant did not contest the taxability of pre-closure charges on merit, citing a pending issue before the High Court. The appellant argued that part of the demand was time-barred, beyond the one-year period from the Show Cause Notice. The Tribunal acknowledged the conflicting judgments in the cases of SIDCO and HUDCO, leading to a referral to a larger bench. The Tribunal upheld the demand for the normal period but set aside the demand for the extended period due to the lack of malafide intention on the appellant's part. Consequently, the penalty imposed was also set aside invoking section 80 of the Finance Act, 1994.

2. Locker rent charges:
Regarding locker rent charges, the appellant contended that the entire amount was received before the taxable period, making it exempt under notification 25/2004-ST. The Tribunal agreed that even though the services were provided post the taxable date, since the amount was received prior to it, the locker rent charges were exempted. Therefore, the demand on locker rent charges was set aside. The Tribunal partially allowed the appeal based on these findings.

In conclusion, the judgment clarified the service tax liability of a banking institution on pre-closure charges of a loan account and locker rent charges for the specified period. It emphasized the importance of timelines and exemptions under relevant notifications in determining the taxability of such charges. The decision was made after considering conflicting judgments and ensuring fairness in the application of tax laws.