TMI Blog2022 (9) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... hing but net present value of loss of interest that will be caused to the respondent. It is not possible to accept the contention of the Department that restructuring premium charged by the respondent would fall under lending and would be subjected to levy of service tax under banking and other financial services . Extended period of limitation - HELD THAT:- The extended period of limitation could not have been invoked in the facts and circumstances of the case. The respondent believed that the activities carried on by it was not taxable and the belief of the respondent stands justified by the order of the Commissioner dropping the charges. It also needs to be noted that the respondent had duly disclosed and recorded the information in its books of account. It cannot, therefore, be alleged that it had concealed or suppressed information with an intent to evade payment of service tax. The impugned order passed by the Commissioner, therefore, does not call for any interference in this appeal - appeal dismissed. - SERVICE TAX APPEAL NO. 370 OF 2012 - FINAL ORDER NO. 50896/2022 - Dated:- 23-9-2022 - MR. DILIP GUPTA, PRESIDENT AND MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice tax because the amount collected upfront i.e. premium is a portion of loss of interest income which the respondent will suffer on the account of swap allowed to the borrower for the higher rate of interest with the lower rate of interest and that the subject earnings are akin to interest on loans and not towards any charges pertaining to other than interest and that the interest on loans is not subjected to service tax; (ii) It is not disputed that the respondent allowed the interest restructuring of loan after 3 years on payment of a 'premium' for the entire remaining period of loan, whereby the borrower is allowed to swap the higher rate of interest with the lower rate of interest. Thus, the respondent is facilitating the already existing borrower to take the advantage of the prevailing new low interest rate, if any, and thereby bringing down the borrower's cost of borrowing the loan. Moreover, the interest restructuring premium amount charged by the respondent from the borrowers was the consideration for the said taxable service provided by the respondent to its clients and such interest restructuring premium amount was the value of the taxable service prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and other financial services ; and (iv) The respondent was under a bonafide belief that the activity carried on by it is not taxable and this belief of the respondent stands confirmed as the demand has been dropped by the Commissioner. In such circumstance, there was no intention to evade payment of tax and so the extended period of limitation could not have been invoked. 6. The submissions advanced by the learned authorized representative appearing for the Department and the learned chartered accountant for the respondent have been considered. 7. In order to provide the benefit of lower interest rate in future as against the prevailing rate to the borrowers, an option is given to the borrowers for interest restructuring of loan though the other terms of the contract remain unchanged. As per the guidelines of the respondent, loans disbursed by it would be eligible for interest restructuring of loan subject to the stipulation that a loan which has been restructured for 3 years, shall be considered for further restructuring after 3 years on the payment of 50% of premium for the entire remaining period of loan. 8. It has to be examined whether restructuring premium charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest restructuring premium amount is not in relation to the loan amount and would, therefore, not be akin to interest. 12. The contention raised on behalf of the respondent is that interest restructuring charges would be outside the ambit of banking and other financial services for the reason that the term lending means depositing of money or property with the expectation that the same will be returned, while in the case of interest restructuring , the borrower is allowed to swap the higher rate of interest with the lower rate of interest. The premium which the respondent receives for interest restructuring of loan is for the loss of interest which the respondent will suffer on account of lowering of the rate of interest on the loan granted to the borrower. By providing interest restructuring facility, the respondent agrees to forgo its future income by way of interest and gets only a portion that interest in advance in the year in which interest restructuring is done. 13. As an example, if rate of interest (say 9%) is agreed upon between the respondent and the customer taking loan. However, in future, as per market prevailing rates, such rate of interest may be low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent Value. 16. This above computation has been explained by the respondent with the help of an example to understand how this 'interest adjustment' is computed and what it denotes. It is as follows: Illustration: Say Respondent sanctioned a loan to Mr. A of Rs. 1,20,000/- on 01 April 2021 payable till 31 March 2027 in 6 equal annual installments of Rs. 20,000 each along with Interest rate of 9%. Mr. A paid the three installments till 31 March 2024 as below Date Principal outstanding Principal repaid Rate of Interest p.a. Period (Year) Interest Aggregate Installment 01-Apr-21 1,20,000.00 - 9% - - - 31-Mar-22 1,20,000.00 20,000.00 9% 1 10,800.00 30,800.00 31-Mar-23 1,00,000.00 20,000.00 9% 1 9,000.00 29,000.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,200.00 3,600.00 3,269.88 50% of Discounted Interest collected as Premium from Mr. A on account of Interest Restructuring 1,634.94 *Discounting Factor is derived by the following formulae - [1/(1+r)n] 17. It can be seen from the illustration above, that respondent was to receive total interest of Rs. 10,800 in next 3 years at the original interest rate of 9% as agreed upon but due to lowering down the interest rate to 6%, respondent will now receive Rs. 07,200 at 6% rate of interest in next 3 years. Therefore, to compensate for the loss of interest that is going to be caused to the respondent for reduction in rate of interest due to interest restructuring, respondent computed net present value of such loss (which comes out to Rs. 03,269.88/-) and collected 50% of the same as premium for interest restructuring while remaining 50% is the benefit gained by the customer due to interest restructuring. 18. Thus, premium so charged by the respondent from its customers due to interest restructuring is nothing but net present value of loss of interest that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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