2023 (6) TMI 501 - CESTAT CHENNAI

Non-payment of Service Tax - Banking and Other Financial Services - delayed payment charges collected from the borrowers who made loan repayments belatedly ie beyond the period stipulated in the agreement - declared service in the light of section 66E(e) of the Finance Act, 1994 or not.

Whether section 65(12) of the Finance Act, 1994 cover ‘delayed payment charges’ under the classification of ‘Banking and Other Financial Services’, up to 30/06/2012? - HELD THAT:- As per section 65 (105) (zm) of FA 1994 "Taxable Service" means any service provided or to be provided to any person, by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, in relation to banking and other financial services. It is seen that as per Para 6 of the agreement the borrower acknowledges that strict compliance of the repayment schedule is an essential condition for grant of loan and the time is the essence of the contract. The agreement hence indicates that the provision for delayed payment is not the reason for the agreement but only provides a safeguard to the commercial interest of the appellant. Hence the payment, unlike interest, is only a condition and not the consideration for the loan. The payment therefore cannot be treated as interest as claimed by the appellant.

Consideration is something paid or done in furtherance of the object or purpose for which the parties enter into a contract. Defaulting on the loan schedule cannot be said to be the object or purpose of the agreement. Hence the penal payment of ‘delayed payment charges’, cannot be held to be ‘consideration’ as per Explanation (a) to section 67 for providing a loan to any person as a taxable service, classifiable under ‘Banking and Other Financial Services’ of FA 1994, for the period prior to 30/06/2012. This being so the demand for service tax on this count must fail. Unlike FA 1994, provisions under Section 15 of the Central Goods and Services Tax (CGST) Act, 2017 relating to “Value of Taxable Supply”, includes interest or late fee or penalty for delayed payment of any consideration for any supply and hence the Boards GST circular dated 03/08/2022, relied upon by both the parties would not be relevant to understand the legal issue involved in this case.

Whether the appellant is providing a ‘declared service” as per section 66E(e) of FA 1994? - period with effect from 1.7.2012 - HELD THAT:- A similar stand has been taken by coordinate benches of this Tribunal in M/S NEYVELI LIGNITE CORPORATION LIMITED VERSUS COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, CHENNAI WITH M/S NLC INDIA LIMITED VERSUS COMMISSIONER OF GST AND CENTRAL EXCISE, TRICHY [2021 (7) TMI 1090 - CESTAT CHENNAI] in the case of M/S. BHARAT HEAVY ELECTRICALS LIMITED VERSUS COMMISSIONER OF G.S.T AND CENTRAL EXCISE, TIRUCHIRAPPALLI [2023 (4) TMI 1196 - CESTAT CHENNAI], where it was held that the penalty amount, forfeiture of earnest money deposit and liquidated damages received by the appellant therein towards “consideration” for “tolerating an act” as being amenable to Service Tax under Section 66E (e) of the Finance Act, was not sustainable. - thus the service tax could not be levied on ‘delayed payment charges’ collected by the appellant from their customers from 01.07.2012 also.

As the issue does not survive on merits for the entire period of both the show cause notices, all the other issues related to valuation, interest and penalties etc. also do not survive.

Appeal allowed.