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2023 (6) TMI 501 - AT - Service TaxNon-payment of Service Tax - Banking and Other Financial Services - delayed payment charges collected from the borrowers who made loan repayments belatedly ie beyond the period stipulated in the agreement - declared service in the light of section 66E(e) of the Finance Act, 1994 or not. Whether section 65(12) of the Finance Act, 1994 cover delayed payment charges under the classification of Banking and Other Financial Services , up to 30/06/2012? - HELD THAT - As per section 65 (105) (zm) of FA 1994 Taxable Service means any service provided or to be provided to any person, by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, in relation to banking and other financial services. It is seen that as per Para 6 of the agreement the borrower acknowledges that strict compliance of the repayment schedule is an essential condition for grant of loan and the time is the essence of the contract. The agreement hence indicates that the provision for delayed payment is not the reason for the agreement but only provides a safeguard to the commercial interest of the appellant. Hence the payment, unlike interest, is only a condition and not the consideration for the loan. The payment therefore cannot be treated as interest as claimed by the appellant. Consideration is something paid or done in furtherance of the object or purpose for which the parties enter into a contract. Defaulting on the loan schedule cannot be said to be the object or purpose of the agreement. Hence the penal payment of delayed payment charges , cannot be held to be consideration as per Explanation (a) to section 67 for providing a loan to any person as a taxable service, classifiable under Banking and Other Financial Services of FA 1994, for the period prior to 30/06/2012. This being so the demand for service tax on this count must fail. Unlike FA 1994, provisions under Section 15 of the Central Goods and Services Tax (CGST) Act, 2017 relating to Value of Taxable Supply , includes interest or late fee or penalty for delayed payment of any consideration for any supply and hence the Boards GST circular dated 03/08/2022, relied upon by both the parties would not be relevant to understand the legal issue involved in this case. Whether the appellant is providing a declared service as per section 66E(e) of FA 1994? - period with effect from 1.7.2012 - HELD THAT - A similar stand has been taken by coordinate benches of this Tribunal in M/S NEYVELI LIGNITE CORPORATION LIMITED VERSUS COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, CHENNAI WITH M/S NLC INDIA LIMITED VERSUS COMMISSIONER OF GST AND CENTRAL EXCISE, TRICHY 2021 (7) TMI 1090 - CESTAT CHENNAI in the case of M/S. BHARAT HEAVY ELECTRICALS LIMITED VERSUS COMMISSIONER OF G.S.T AND CENTRAL EXCISE, TIRUCHIRAPPALLI 2023 (4) TMI 1196 - CESTAT CHENNAI , where it was held that the penalty amount, forfeiture of earnest money deposit and liquidated damages received by the appellant therein towards consideration for tolerating an act as being amenable to Service Tax under Section 66E (e) of the Finance Act, was not sustainable. - thus the service tax could not be levied on delayed payment charges collected by the appellant from their customers from 01.07.2012 also. As the issue does not survive on merits for the entire period of both the show cause notices, all the other issues related to valuation, interest and penalties etc. also do not survive. Appeal allowed.
Issues Involved:
1. Taxability of 'delayed payment charges' under 'Banking and Other Financial Services' up to 30/06/2012. 2. Taxability of 'delayed payment charges' as a 'declared service' from 01/07/2012. Summary: Issue 1: Taxability under 'Banking and Other Financial Services' up to 30/06/2012: The Tribunal examined whether 'delayed payment charges' collected by the appellant, M/s. Cholamandalam Investment & Finance Company Ltd. (CIFCL), were taxable under section 65(12) read with Section 65(105)(zm) of the Finance Act, 1994. The Tribunal noted that the 'delayed payment charges' were not a consideration for the loan but a penalty for default. The charges were treated separately from interest in the financial statements and were not considered a part of the taxable service under 'Banking and Other Financial Services'. Therefore, the demand for service tax on 'delayed payment charges' for the period prior to 30/06/2012 was set aside. Issue 2: Taxability as a 'declared service' from 01/07/2012: The Tribunal analyzed whether 'delayed payment charges' constituted a 'declared service' under section 66E(e) of the Finance Act, 1994. The Tribunal referred to previous judgments, including South Eastern Coalfields Ltd. Vs. Commissioner of CGST and Central Excise, which clarified that penal charges for default were not a consideration for tolerating an act or situation but were intended to deter defaults. The Tribunal concluded that 'delayed payment charges' did not qualify as a 'declared service' and thus were not taxable from 01/07/2012. Conclusion: The Tribunal set aside the impugned orders and allowed the appeals, concluding that 'delayed payment charges' were not subject to service tax for the entire period covered by the show cause notices. Consequently, issues related to valuation, interest, and penalties were also dismissed. The appeals were disposed of with consequential relief as per law.
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