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.

Summary

Issues Involved:
1. Service Tax on renting of immovable property.
2. Service Tax on sale of loan application forms.
3. Service Tax on concessional interest charged under Seed Capital Assistance Scheme.
4. Service Tax on foreclosure charges for premature payment of loans.
5. Service Tax on annual service charges against Working Capital Term Loan.

Summary:

1. Service Tax on Renting of Immovable Property:
The appellant had already deposited the service tax as per the adjudication order. The Commissioner (Appeals) dropped the demand of Rs. 1,58,377/- for the period 01.06.2007 to 31.03.2009, which was accepted by the department. The appellant did not press the issue regarding the demand of Rs. 16,117/- for the period 01.04.2009 to 31.08.2009.

2. Service Tax on Sale of Loan Application Forms:
The learned counsel argued that the sale of loan application forms is not a service and thus not taxable. The Tribunal's order in the case of Sadhana Educational & People Development Services Pvt. Ltd. supported this view, holding that amounts collected for the sale of forms are not includible in the taxable value for service tax.

3. Service Tax on Concessional Interest Charged Under Seed Capital Assistance Scheme:
The appellant acted as an agent of IDBI for the Seed Capital Scheme, which carries a nominal service charge of 1% per annum for the first five years and interest at 10% per annum thereafter. The Tribunal noted that interest on loans is not taxable under the 'Banking and other Financial Services' category, thus the charges under this scheme are not liable to service tax.

4. Service Tax on Foreclosure Charges for Premature Payment of Loans:
The learned counsel argued that foreclosure charges are liquidated damages and not a consideration for any service. The Tribunal, referencing the Larger Bench decision in Commissioner of Service Tax, Chennai Vs. Repco Home Finance Ltd., held that foreclosure charges are not leviable to service tax as they are damages for breach of contract and not a service provided.

5. Service Tax on Annual Service Charges Against Working Capital Term Loan:
The Tribunal found that the 1% service charge on Working Capital Term Loans is a financial charge for providing financial services and is distinct from interest. Thus, service tax is leviable on this charge.

Penalty Waiver:
The Tribunal upheld the waiver of penalties under Sections 76, 77, and 78 of the Act, invoking Section 80, due to the appellant's bona fide belief and cooperation with the Department.

Conclusion:
The demand of Rs. 16,99,443/- with applicable interest was upheld, while the remaining demand was set aside. The Order-in-Appeal was modified accordingly.