2024 (5) TMI 1130 - AT - Service Tax

Demand of service tax on charges related to banking and financial services - Service charge received against Working Capital Term Loan (WCTL) - income from pre-payment for financial charges received against seed capital - registration charges on the one time settlement - HELD THAT - We find that the issues raised in these proceedings are already covered by the decision of Coordinate Bench in appellant s own case. Thus, it is seen that the issue is settled in favour of the appellants in respect of income from pre-payment of financial charges received against seed capital and in respect of registration charges on the one time settlement. However in respect of service charges received against WCTL, the issue has been decided against the appellant. Thus, we set aside the demand in so far as seed capital and registration charged on the one time settlement is concerned and we confirm the charges in respect of WCTL. The impugned order is modified accordingly.

Summary

Issues Involved: Appeal against demand of service tax on charges related to banking and financial services.

Service Charge Received Against WCTL:
The appellant argued that the service charge on Working Capital Term Loan (WCTL) is akin to interest and thus not liable to service tax. However, the tribunal differentiated between interest and service charges, holding that the 1% service charge on WCTL is a consideration for financial services provided by the appellant, making it subject to service tax.

Income from Pre-payment for Financial Charges Against Seed Capital:
The tribunal referred to previous decisions and established that charges related to pre-payment or foreclosure of loans are not taxable under banking and financial services. The nature of such charges was deemed as compensation for the loss of "expectation interest" and not a consideration for lending services, thus exempt from service tax.

Registration Charges on One Time Settlement:
Similar to the charges related to seed capital, the tribunal ruled that registration charges on one-time settlement are not liable to service tax. These charges were considered outside the scope of taxable services provided by the appellant, leading to the demand being set aside.

In conclusion, the tribunal upheld the demand for service tax on service charges received against WCTL, while ruling in favor of the appellant regarding income from pre-payment for financial charges against seed capital and registration charges on the one-time settlement. The impugned order was modified accordingly.