Section 67 of the Finance Act prescribes 'Valuation of taxable services for charging service tax'. It explains what to be included in the 'Consideration' and what is to be excluded from the value of taxable services. To further clarify and explain the 'Valuation' of taxable service, the Service Tax (Determination of Value) Rules, 2006 were introduced. Thus, for deciding whether a certain income would be included in the value of taxable services or not, Section 67 has to be read and interpreted with the aforesaid Service Tax valuation rules. Rule 6 of the said Valuation Rules provides for 'what to be included and what to be excluded' for determining the value of taxable services. Sub rule 2 of rule 6 of the Valuation rules, specifically excludes the amount received as 'interest on loan'. Therefore, if the assessee is in receipt of any amount towards 'interest on loan' granted, it shall not be included in the value of taxable service under Section 67. Similarly, after the introduction of Negative List (i.e., 01.07.2012), the said amount received towards interest on loan would not be liable to Service Tax in terms of the provisions of Section 66D of Finance Act, 2013. Though, grant of loan or lending of money was taxable under the category of 'Banking and other Financial Services' – Section 65(105)(zm) in the pre-negative list period and also after the introduction of negative list but, the interest on loan was never within the scope of 'Service Tax Law.'
A matter was argued by our team before the Hon'ble CESTAT Delhi, where the adjudication order was in the favour of the assessee/respondent and the department preferred an appeal, challenging the adjudication order. The challenge was on the ground that the respondent, who was providing the services under the category of 'Banking and other financial services, granted loans for energy and energy efficiency projects, State Electricity Boards and private parties, & would be liable to pay service tax on premium charged for restructuring of loans. The said premium was treated as 'Loss of Interest' by the respondent and therefore, no service tax was paid. It was contended on behalf of the department that the Commissioner erred in holding that the premium is a portion of 'loss of interest' as stated by the respondent. It was not in dispute that the respondent allowed the interest restructuring of loan after 3 years on payment of '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 advantage of the prevailing new low interest rate, if any, and thereby bringing down the borrower's cost of borrowing the loan. It was submitted by the department that 'interest restructuring premium' amount is not at all akin to the 'interest' as charged upon a loan. Therefore, a consideration received for the service provided to the borrowers by the respondent. On behalf of the respondent, it was argued by our team that interest restructuring charges are outside the ambit of 'banking and other financial services' and the premium received towards interest restructuring are in the nature of interest. Further, even if it is considered that the premium on 'interest restructuring of loan' is same as fore-closure charges, as contended by the department, it would not be liable to Service Tax in view of the decision of Repco Finance Ltd. – 2020 (42) GSTL 1045 (Tri.-L.B.)
The Hon'ble Bench after considering the submissions found that the premium so charged by the respondent from its customers due to interest restructuring is nothing but Net Present Value of loss of interest that will be caused to the respondent. Therefore, 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 subject to levy of Service Tax under 'Banking and Financial Services.' Further, the contention of the department is that those charges are covered under 'Foreclosure Charges', and in that case also the amount received cannot be taxed in view of the decision of Repco Home Finance Ltd. Moreover, the extended period of limitation would not be invocable when the respondent was under a bonafide belief and also, when the stand of the respondent was justified by the order of the Commissioner. Therefore, it cannot be alleged that it had concealed or suppressed information with an intent to evade payment of service tax.
The Hon'ble Bench with the above observations and findings held that the impugned order does not call for any interference and therefore, the appeal of the revenue is liable to be dismissed.
Case details — Commissioner, Central Excise & Service Tax, LTU, Delhi v. Power Finance Corporation
Forum — CESTAT, New Delhi
Case No. — Final Order No. 50896/2022 dated 23.09.2022 in ST/370/2012
Represented by — CA Atul Kumar Gupta, CA Anmol Gupta & Adv. Varun Gaba