2023 (3) TMI 538 - AT - Service Tax

Levy of Service Tax - banking and other financial services or not - State Financial Corporation / undertaking of the Government of Rajasthan and has been formed for non-business/ non commercial purposes to facilitate the growth of the industry in Rajasthan - renting of immovable property - sale of loan application forms - concessional interest charged under Seed Capital Assistance Scheme - foreclosure charges for premature payment of loans - annual service charges against Working Capital Term Loan - levy of penalty invoking section 80 of FA.

Sale of loan forms - HELD THAT:- This issue stands decided by the Tribunal vide its order in the case of SADHANA EDUCATIONAL & PEOPLE DEVELOPMENT SERVICES PVT LTD, SADHANA EDUCATIONAL & EMPOWERMENT FOUNDATION, INSTITUTE OF MANAGEMENT EDUCATION VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-III [2015 (6) TMI 694 - CESTAT MUMBAI] wherein it has held that amount collected for sale of forms prospectus etc. would not be includible in the taxable value for levy of service tax - thus, the sale of loan application forms is not a taxable service and therefore, no demand is leviable on such sale of loan forms.

Seed Capital Assistance Scheme - HELD 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.

Service charge for prepayment/foreclosure of premature payment of loan - HELD THAT:- The leviability of Service Tax on foreclosure has been examined in detail by this Tribunal in COMMISSIONER OF SERVICE TAX, CHENNAI VERSUS M/S REPCO HOME FINANCE LTD. [2020 (7) TMI 472 - CESTAT CHENNAI] where it was held that Foreclosure charges collected by the banks and non-banking financial companies on premature termination of loans are not leviable to service tax under “banking and other financial services” as defined under Section 65(12) of the Finance Act - thus, the service charges for pre-payment or foreclosure of loan amount by the customer cannot be treated as taxable service and is not chargeable to service tax.

Service charge against Working Capital Term Loan - HELD THAT:- 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 said service charge is a financial charge on account of providing financial services of loans and advances. In view of the same, it is held that service tax is leviable on the service charge, realized on Working Capital Term Loan by the appellant.

Levy of penalty under Section 76, 77 & 78 of the Act - Suppression of facts or not - HELD THAT:- The Appellant is a State Government enterprise, and in such a case allegation of willful suppression of facts with an intention to evade the duty payment cannot be made. It is seen that the Tribunal in several cases has held that where the waiver of penalty under Section 80 of the Act is based on the bona fide belief on the part of the appellant that the extended period would not be invokable in as much as the same ingredients are required for invocation of extended period of limitation - there was certainly a bonafide belief of the Appellant that no service tax was leviable on the financial services provided by them. In view of the above, the waiver of penalty under section 80 of the Act has been correctly invoked by the Commissioner (Appeals).

The demand of Rs. 16,99,443/- with applicable interest upheld. The remaining demand is set aside - appeal disposed off.