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TMI Blog2023 (6) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eved by the above orders (impugned orders), the appellants are now before us in appeals. 3. The facts of the case are that CIFCL are engaged in the business of extending financial assistance against securities. As seen from the sample Loan Agreement (herein after referred to as agreement ) submitted by the appellant during the hearing, the loan provided under the agreement shall be for the period as specified in the schedule to the agreement [Para 1(b)]. The borrower is liable to pay interest on the loan amount from the date of disbursement of the loan at the rates specified in the schedule to the loan agreement [Para 2(b)]. The borrower is required to pay all taxes on interest, other taxes, other charges / outgoings whatsoever in respect of the agreement [Para 2(e)]. If the borrower defaults in remitting any amount, due to the company, pursuant to the agreement, the borrower shall pay the company an additional interest at the rate mentioned in the schedule to the agreement on the entire outstanding from the date of default till the date of settlement [Para 2(f)]. The borrower acknowledges that strict compliance of the repayment schedule is an essential condition for grant of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FA 1994, for the issue at para 4(b) above, covering the period from April 2015 to January 2017. The appellant has assailed both the orders in their appeal. 5. We have heard Shri N. Sriprakash, learned counsel for the appellant and Dr. S. Subramanian, learned special counsel for the Department. 5.1 The learned counsel Shri N. Sriprakash has stated that the additional interest / delayed payment charges were nothing but interest and therefore could not be brought to tax for the period upto 30.6.2010 in light of Rule 6(2)(iv) of Service Tax (Determination of Value) Rules, 2006 (STR 2006). Further, he has stated that as an alternative plea that since the additional / delayed payment charges are treated as penal charges / damages, the same could not have been brought to tax. On the merits of the case the learned counsel relied upon Tribunal judgments in Neyveli Lignite corporation Ltd. Vs. Commissioner of Customs, Central Excise and Service Tax [2021 (53) GSTL 401 (Tri. Chen.)] and South Eastern Coalfields Ltd. Vs. Commissioner of CGST and Central Excise [2021 (55) GSTL 549 (Tri. Del.)]. They have also relied on para 7 and 9 of CGST Circular No 178/10/2022-GST dated 03/08/2022 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have deliberately suppressed the matter to evade payment of service tax. Hence the impugned orders may be confirmed. 7. We have gone through the appeals, cross objections and the connected papers and have heard representatives of both the parties. We find that the issue relates to the taxability of delayed payment charges received by the appellant from their customers under different provisions/ sections of FA 1994 for different periods, as applicable. We examine the matter issue wise. A) The first issue is 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. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee or penalty for delayed payment of any consideration for any supply and hence the Boards GST circular dated 03/08/2022 (supra), relied upon by both the parties would not be relevant to understand the legal issue involved in this case. Similarly, the Advance Ruling In RE: New Tripura Area Development Corporation Ltd, (supra) has been passed under the provisions of the GST Act and is distinguished. B) For the period with effect from 1.7.2012 the issue involved is whether the appellant is providing a declared service as per section 66E(e) of FA 1994. Revenue is of the view that the delayed payment charges are a consideration for the appellant tolerating the default in payment by the borrower by not exercising the recovery option by sale of securities provided by the borrower to the appellant at the time of securing the loan. The issue regarding what constitutes a consideration for agreeing to tolerate an act or a situation has been elaborately discussed and decided by coordinate Bench of this Tribunal in the case of South Eastern Coalfields Ltd. Vs. Commissioner of CGST and Central Excise (supra). The relevant paras of the judgment are reproduced below; 25. It is in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at section 65B(44) defines service to mean any activity carried out by a person for another for consideration. Explanation (a) to section 67 provides that consideration includes any amount that is payable for the taxable services provided or to be provided. The recovery of liquidated damages/penalty from other party cannot be said to be towards any service per se, since neither the appellant is carrying on any activity to receive compensation nor can there be any intention of the other party to breach or violate the contract and suffer a loss. The purpose of imposing compensation or penalty is to ensure that the defaulting act is not undertaken or repeated and the same cannot be said to be towards toleration of the defaulting party. The expectation of the appellant is that the other party complies with the terms of the contract and a penalty is imposed only if there is non-compliance. 29. The situation would have been different if the party purchasing coal had an option to purchase coal from A or from B and if in such a situation A and B enter into an agreement that A would not supply coal to the appellant provided B paid some amount to it, then in such a case, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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