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TMI Blog2019 (8) TMI 1029X X X X Extracts X X X X X X X X Extracts X X X X ..... payable of Rs. 3,28,602/- and accordingly reject the appeal filed by the Appellant." 2.1 Appellant is a public sector bank and is providing Banking and Financial Services as defined by Section 65(12) of the Finance Act, 1994. 2.2 As per the intelligence gathered the Appellant had entered into a credit facility agreement with M/s Clearing Corporation of India Ltd (CCIL) under which M/s CCIL were required to pay a commitment fee to the Appellant, as fixed percentage, per annum, of fund based limit. The said commitment fee was directly being debited to the account, by the Appellant, without raising any invoice. The said service of lending was a taxable service, w.e.f 11.09.2004 under the category of "Banking and Other Financial Services". However appellants had not taken any registration or paid service tax in respect of the services so rendered. 2.2 After completion of investigations a Show Cause Notice dated 26.12.2006, was issued to them asking them to show cause as to why "i. the service tax including education cess amounting to Rs. 3,30,031/- (Rupees Three Lakhs thirty thousand and thirty one only), as detailed in Annexure I, should not be assessed and recovered from it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of banking practices, minimum interest and not bank charges. * The facility so extended by the appellant is disaster management facility only and cannot be termed as lending. This is further strengthened by the fact that CCIL had never utilized this facility by drawing any amount out of Rs. 100 Crore extended by them during the entire period. * They are one of the six promoters of CCIL and hence CCIL cannot be considered as one of the Banking Customer for them. Thus relevant provisions of Section 65 (105)(zm) do not apply in their case. * Cum Tax Benefit as per Section 67(2) should have been allowed to them. * Penalties under Section 76, 77 & 78 should not have been imposed, also benefit of Section 80 should have been extended to them. * Simultaneous penalties under Section 76 and 78 should not have been imposed [The Financers [2007 (80 STR 7 (T-Del)], Kamal Photo Studio and Color Lab [2007 (7) STR 307 (T-Mum)] * They being public sector bank, o malafide intentions can be attributed to them for invoking extended period of limitation. * They rely on following decisions * Industrial Security Agency [2008 TIOL 960 CESTAT-Del] * Shree Soap & Chemical In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4]. Further in case of Ram Decorative & Industries Limited [2000 (124) ELT 659 (T)] it has been held that commitment charges collected from the buyers of excisable goods who failed to lift the entire quantity are in nature of liquidated damages and not includible in assessable value. * Commitment charges for un-availed portion of facilities fall within broad meaning of interest and same is excluded from the purview of the service tax. Board has vide letter F No B2/8/2004-TRU dated 10.09.2004 sated "The interest on loans has been specifically excluded by way of amendment to the provisions relating to the valuation. All such interests that are in nature of interest on loan would thus remain excluded from taxable value." * Commitment charges are inclusive of service tax and hence the benefit of Section 67(2) should have been extended to them. * They had reasonable belief that no tax is payable. The proceedings have been started against them on the basis of CAG audit objection. CBEC has vide Circular No 345/6/2008-ST dated 11.06.2008 has clarified with regard to levy of service tax on foreclosure charges and vide letter No 137/62/2011- ST dated 21.10.2011 with regard to levy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India, IDBI Bank Ltd.(formerly Industrial Development Bank of India), ICICI Bank Ltd, Life Insurance Corporation of India (LIC), Bank of Baroda and HDFC Bank Ltd. 5.3 CCIL had vide its letter No CCIL/L7S/o6/265 dated 17.11.2006 in response to summons dated 09.11.2006 issued to them submitted the details sating that- * Appellants recovered interest on the line of credit (LOC) amount utilized by it in form of LOC utilization charges; * The LOC utilization charges were recovered by CCIL from its defaulting members; * No bills were raised by the appellants for the commitment charges which were paid based on the terms of agreements either at the commencement or at the end of a calendar quarter; * Commitment charges were paid by account payee cheques. 5.4 Vide letter No TRY:Admn.FC:06/77 dated 21.12.006, appellants submitted the copy of Credit facility agreement dated 11.04.2002 entered with CCIL. In the said letter they further stated- * Only CCIL had been extended such credit facility agreement; * Commitment charges of Rs. 3,75,000/- per quarter had been received from CCIL * No bills had been raised by them on CCIL for commitment charges; * Service Tax of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to time. With a committed facility, the bank agrees to provide funds up to a maximum limit for a specified period of time and at an agreed interest rate. Although the terms and conditions are stringent and specific on how the funds are to be used, borrowing firms receive a guaranteed source of funding for the duration of the agreement. A commitment fee generally is specified as either a flat fee or a fixed percentage of the undisbursed loan amount. The lender charges a commitment fee as compensation for keeping a line of credit open or to guarantee a loan at a specific date in the future. The borrower pays the fee in return for the assurance the lender will supply the loan funds at the specified future date and at the contracted interest rate, regardless of conditions in the financial and credit markets. Legally, a commitment fee is different from interest, although the two often are confused. The key distinction between the two is that a commitment fee is calculated on the undisbursed loan amount while interest charges are calculated by applying an interest rate on the amount of the loan that has been disbursed and not yet repaid." 5.6 Commissioner (Appeal) has in para 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which are liable to service tax. Further, M/s. CCIL is an independent company, and even if they had been promoted by the Appellant, as claimed, it does not mean that M/s. CCIL cannot be a customer of the Appellant, for the purpose of providing taxable services, as argued in their submission. The contention of the Appellant in this regard, vide para 5(ii), (iii) and (iv) above, is therefore not acceptable." 5.7 In view of the discussions as above and established practices in banking and financial industry we do not find any 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 Ram Decorative & Industries Limited [2000 (124) ELT 659 (T)] 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 lifte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd services; (iii) merchant banking services; (iv) securities and foreign exchange (forex) broking; (v) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, but does not include cash management; (vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; and (vii) provision and transfer of information and data processing; and (viii) other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank accounts; (b) foreign exchange broking provided by a foreign exchange broker other than those covered under sub-clause (a); From the above, it can be seen that sub-clause (viii) and clause (b) marked bold were added in the 2004 Budget thus expanding the scope of services." 9. A taxable service is defined under Section 55(105)(zm) of Finance Act, 1994 and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same and closure of loan. These activities can be definitely in relation to Banking & other Financial services, which includes lending after 10-9-04. Further, when loans are foreclosed, the situation gives rise to the issue of asset liability mis-match for the lender since lender has to find alternative source for deployment of such funds. Prepayment charges are the charges leviable by a bank/lender to offset the cost of such finding such alternative source for deployment of fund and also intended to make exit difficult for the borrower. This shows that prepayment charges can never be considered to be in the nature of interest. 11. The appellants relied upon the judgment of Tribunal in the case of SIDBI, wherein the Tribunal had held that the activity of foreclosure of the loan cannot be treated as Banking & other Financial Service. 12. We have considered the decision of the Tribunal in the case of SIDBI. In that case, the demand for Service Tax was made on the amount collected for prepayment of direct loan from the customer. In that case also, as in the present case, it was submitted by the appellant that foreclosure of loan is a case of ending service and foreclosure c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cited by the ld. Authorised representative appearing for the Department and listed below, to support his submission that the facts of the decision relied upon have to be shown, and the ratio of the case is what is decided therein in the facts of the case and not what logically can be deducted from the same. (i) Collr. of CCE, Calcutta v. Alnoori Tobacco Products - 2004 (170) E.L.T. 135 (S.C.) (ii) CCE, Bangalore v. Srikumar Agencies - 2009 (13) S.T.R. 3 (S.C.) (iii) Sneh Enterprises v. CC, New Delhi - 2006 (202) E.L.T. 7 (S.C.) 13. We find that these decisions support the submissions. We have already seen that in the case of SIDBI, the facts were not discussed in detail, statutory provisions were different and the submission were different. 14. The two decisions of the European Court cited by the ld. Counsel are not appropriate since they do not really relate to Banking & other Financial Services. Further without comparing statutory provisions, it will not be appropriate to rely upon the decision of the European Court, for Indian cases. The appellants also relied upon the decision of Hon'ble High Court of Madras in the case of Edupuganti Pitchayya & Ors v. Gonuguntl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relationship between the lender and the borrower does not cease to exist and loan also continues. Therefore, resetting of interest rate can be definitely considered as a service rendered by the appellant in relation to lending and is covered by Service Tax definition. It was submitted by the appellant that resetting charges were not being collected by them after 2004-2005. However, it was submitted by the ld. A.R. appearing for the Department that in the financial year 2005-06, 2006-07, 2007-08, the appellant had changed the head of income from resetting charges to additional interest. We find that this submission was not made before the original adjudicating authority and further we also find that in Para 5 wherein the Service Tax liability has been worked out in the table, in the first year, it has been shown as reset charges whereas in the year 2005-06, it has been shown as additional interest charges. In the year 2006-07 and 2007-08, it has been specifically indicated as additional interest (prepayment). This gives an impression that contrary to the submission made by the ld. A.R. appearing for the Department, the Department's contention was that in the year after 2005- 06, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckground, the prepayment charges can never be considered to be in the nature of interest as prepayment only means payment before time. This should ideally result in refund of interest and not the demand for more interest because the borrowed money is being paid back before time." 5.9 Following the decision of HUDCO, tribunal has in case of Punjab National Bank, in respect of Commitment Charges held as follows: "5. I have carefully gone through the facts of the case and submissions made by the appellants in the appeal memorandum and during personal hearing. I observe that the commitment charges are the charges imposed on the client who decide not to draw the amount of loan that has been at their disposal. These charges are basically to compensate for the loss of interest that the bank would have earned if the customer had drawn money from loan account. It is seen that the charges are related to lending of money to the client and; in order to give limit/overdraft facility, the bank keeps the fund available for the same. Under such circumstances, it is evident that such charges are integrally connected with the lending which is a taxable service. Therefore, commitment charges can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartments and other departments paid for the telecom services rendered and even for the services rendered by Railways, Postal and other departments, payments are made. Therefore, the fact that the appellant is a wholly owned government company, does not mean that they need not have to follow the law of land or take it lightly and plead ignorance of law or being a wholly government company, seek differential treatment. The fact remains that the appellant was required to declare the income received once the law was amended and they were required to seek clarification, if there was doubt. Even if they felt that the activity did not attract Service Tax, ST-3 returns should have been filed/or Department addressed intimating that these services are not liable to tax. In this case, the submission made by the ld. A.R. that plea of bona fide has to be considered in the light of decision of the Tribunal in the case of SPIE CAPAG S.A. v. CCE Mumbai - 2009 (243) E.L.T. 50 (Tri.-Mum.), is appropriate. In that case, while dealing with the plea of bona fide belief, the Tribunal observed that ''the least that was expected of the appellant to discharge the plea of bona fide belief was to make enqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "80. Notwithstanding anything contained in the provisions of Section 76, Section 77, Section 78 or Section 79 , no penalty shall be imposable on the assessee for any failure referred to in the said provisions, if the assessee proves that there was reasonable cause for the said failure." Taking note of the fact that Appellants are a Public Sector Bank and had deposited the entire amount of Service Tax along with interest much before the issuance of Show Cause Notice to them and also the decisions in case Adecco Flexione Workforce {2012 (26) STR 3 (Kar)] wherein Hon'ble Karnataka High Court held as follows: "3. Unfortunately the assessing authority as well as the appellate authority seem to think. If an assessee does not pay the tax within the stipulated time and regularly pays tax after the due date with interest. It is something which is not pardonable in law. Though the law does not say so, authorities working under the law seem to think otherwise and thus they are wasting that valuable time in proceeding against persons who are paying service tax with interest promptly. They are paid salary to act in accordance with law and to initiate proceedings against defaulters who have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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