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2023 (4) TMI 609 - AT - Service TaxLevy of Service tax - re-instatement interest collected by the appellant on delayed payment of premium by the policy holder to reinstate a lapsed policy (interest on delayed payment of premium by the policy holder) - applicability of rule 6(2)(iv) of the Service Tax (Determination of Value) Rules, 2006 - department believes that the appellant camouflaged the amount received towards processing/administrative charges as reinstatement interest collected on delayed payment of premium. HELD THAT:- It is more than apparent that it is only in a case where the policy has lapsed that it can be revived and a policy which stands terminated cannot be revived. The rights and obligation of the parties under the contract do not come to an end on lapse of the policy as the policy holder has an option to revive the policy on payment of premium with interest. This requirement of payment of interest for revival of a lapsed policy flows from the policy contract. A policy holder is under an obligation to make timely payments of the premium and if such payments are not made in time, the policy may lapse and to revive this policy interest has to be paid under the terms of the contract. The overdue premium interest is, therefore, linked to the obligation of timely payment of premium. The Commissioner committed an error in concluding that the relationship stands terminated upon lapse of a policy and, therefore, no interest can be charged for reviving it. The Commissioner also committed an error in concluding that since the rate of interest is not uniform, it cannot be considered as “interest”. Section 65B(30) of the Finance Act 1994, which defines interest, does not impose any condition that the interest that has to be charged has to be at a uniform rate. The manner in which interest has to be paid is governed by the terms of contract agreed between the parties. The department cannot, therefore, urge that since uniform rate of interest has not been levied, the amount collected would not partake the character of “interest” but would be in the nature of administrative/processing fee. In this view of the matter it would not be necessary to examine the contention advanced by the learned counsel for the appellant that the extended period of limitation could not have been invoked in the facts and circumstances of the case. Appeal allowed.
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