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TMI Blog2024 (5) TMI 1130X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... the first five years and interest at 10% per annum thereafter. IDBI would levy service charge of threefourth of 1% on the amount disbursed to SDICs/ SFCs from the date of disbursement for the first 5 years and 9.5% per annum thereafter. " From the above, it is amply clear that though the term used in 'service charge' but the underlying nature of the 1% and 10% is nothing but interest on the seed capital loan, extended to the entrepreneurs. Therefore the same is not liable to service tax. As observed, it is a settled principle of law that interest on loans is not taxable to service tax. (iii) Service tax on the service charge for prepayment/foreclosure of premature payment of loan : We note that the leviability of Service Tax on fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the service recipient to the service provider and should accrue to the benefit of the latter." In the said decision, the Larger Bench made reference to the concept of "consideration", as was expounded in the decision pertaining to Australian GST Rules, wherein a categorical distinction was made between "conditions" to a contract and "consideration". It has been prescribed under the said GST Rules that certain "conditions" contained in the contract cannot be seen in the light of "consideration" for the contract and merely because the service recipient has to fulfil such conditions would not mean that this value would form part of the value of the taxable services that are provided. 23. The Supreme Court in Commissioner of Service Tax v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipient to the service provider and should accrue to the benefit of the service provider and that the amount charged has necessarily to be a consideration for the taxable service provided under the Act. It should also be remembered that there is marked distinction between "conditions to a contract" and "considerations for the contract". A service recipient may be required to fulfil certain conditions contained in the contract but that would not necessarily mean that this value would form part of the value of taxable services that are provided. 35. The "expectation interest" is a popular measure for damages arising out of breach of contract. The foreclosure charges, therefore, are not a consideration for performance of lending services bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest. If an account is prepaid/foreclosure when the interest rates are falling, the Corporation may have to suffer loss. To overcome this situation, if a premium is charged on the outstanding loan being prepaid, the same cannot be found fault with. I am of the considered view that the Corporation has the power and authority to levy prepayment/foreclosure premium." 37. The foreclosure of loan is, therefore, a material breach of contract as it curtails the loan service period unilaterally, which can prompt the promisor to claim damages. Damages can be determined by Courts or they can also be incorporated in the loan agreements and other commercial contracts so as to ensure certainty in dealings and also serve as a deterrent measure. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter on the date as 1st April/ 1st July, 1st October or 1st January fall due after the expiry of one quarter on the date as 1st April/ 1st July, 1st October or 1st January." 11. Learned Counsel has argued that though the heading indicated is Service Charge, the 1% charge is actually akin to the interest charged on the Working Capital Term Ioan. We are unable to accept this argument of the learned Counsel. The scheme document has clearly differentiated between the interest liable to be charged on such loans and the service charges on such loan. Therefore service charges of 1% indicated separately clearly shows that this amount is a consideration for the services being provided by the appellant to the borrowers. It is apparent that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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