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2018 (6) TMI 385 - AT - Service TaxExposure fee - service or an element of Interest on loan? - Liability of Service tax - reverse charge mechanism - foreign exchange remittances made by the Respondent towards various expenses and fees incurred for raising External Commercial Borrowings (ECB) from various banks and institutions - Revenue was of the view that all the fee, charges paid by the Respondent to the foreign Banks fall under the category of taxable services of “Banking & Financial Services” and “Legal Consultancy Services” received by them from the Banks/ institutions/ companies based outside India and the Respondent is liable to discharge the service tax liability on the same under reverse charge mechanism - penalty. Whether the “Exposure Fee” paid by the Respondent to the US Ex-Im Bank is liable for service tax considering the same as “Service” or it is an element of interest on loan so availed by the Respondent? - Held that:- It is apparent that the interest rates would depend upon the various factors and the interest can be increased or reduced by charging under various heads. It is apparent that even the Indian Banks give loan to business entities on different interest rates under which the base rate remains same but the interest rate is varied by charging or not charging interest under some other head. In the instant case we find that the rate of interest from Commercial Banks and IIFC UK is based on two factors i.e 6 Months Libor rate plus fixed rate of interest in case of EXIM Bank, the two factors considered were fixed rate of interest @ 3.665 plus exposure fee @ 6.74%. Both the interest rates are much or less similar. The said position has not been considered by the revenue in its appeal. The revenue has relied upon the terminology of the agreement as well as policy handbook to canvass that “Exposure fee” is not interest. However we do not agree with the submission of the revenue for the reason that for deciding the nature and meaning of term “Exposure fee’ various facts and factors has to be taken into consideration. The nomenclature given by the party cannot determine the true character of an agreement. Further when the lender bank itself vide its three letters has clarified the position as to what is the intention and ratio behind charging “Exposure fee’, we hold that the interpretation made by the revenue is not sustainable. When the intention of the charging party is apparent in that case it has to be considered that the said amount is a loan pricing element and not towards any service. Various books, websites and other source of information relied upon by the Respondent support their claim Coming back to definition of term Interest in terms of Section 65B (30), we find that the Interest is payable in any manner in respect of money’s borrowed or debt incurred (including a deposit, claim, similar rights or obligation). In the present case, we have reached to the conclusion that the exposure fee is the manner of payment of interest of which the rate is arrived at on the basis of various factors associated with the borrowings. The amount of such Exposure fee is never fixed but is variable depending upon the factors as communicated by the US Exim Bank and clarified by the Bank. We thus after considering all the above factors and in view of our findings as above hold that the “Exposure fee” charged by the US Exim bank cannot be considered as any service by the Bank to the Respondent but is only an interest and is not liable to any service tax. Penalty on the amount of service tax paid by the Respondent on other service fee and charges which was recovered by the lenders from the Respondents - Held that:- There are bonafides on the part of respondent - the Respondent has very good team of employees well conversant with tax matters and it is not tenable that they were not aware of such provisions relating to service tax. Further ignorance of law is not excuse. That they never disclosed the fact related to payment of said fees/ charges to the department. Appeal dismissed - decided against Revenue.
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