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2011 (11) TMI 95 - AT - Service TaxLevy of Service Tax on Prepayment charges and charges for resetting of interest rates under Banking & Other Financial Services. - Held that:- When a borrower opts for prepayment of loan, the tenure of the loan, reason for the prepayment, track record of the borrower in servicing loan, the interest rate existing at the time of lending and at the time of closure, and the loss to the lender because of prepayment are taken into account. - 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. - In the case of resetting, the 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. - Levy of service tax upheld - Decided against the assessee. Extended period of limitation - held that:- plea of bonafide has to be considered in the light of decision of the Tribunal in the case of SPIE CAPAG S.A. Vs CCE Mumbai (2009 -TMI - 75146 - CESTAT, MUMBAI), is appropriate. In that case, while dealing with the plea of bonafide belief, the Tribunal observed that "the least that was expected of the appellant to discharge the plea of bonafide belief was to make enquiries from Central Excise authorities or some reputed legal firm regarding dutiability of items manufactured by it." - demand for extended period for Service Tax and interest thereon has to be upheld. - However penalty set aside.
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