As a relief to Rajasthan Financial Corporation, the New Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that service charges for prepaid or foreclosure of loan by the customer are not a taxable Service and no service tax.
The appellant is the 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. The appellant was registered with the Service Tax Department for providing “Banking and other Financial Services” as defined in section 65(12) of the Finance Act, 1994 and are taxable under section 65(105) (zm) of the Act.
The department demanded an aggregate service tax of Rs.48,51,115/- in respect of the above issues and imposed penalty under Sections 76, 77 and 78 of the Act. The Commissioner (Appeals) set aside the service tax demand of Rs. 1,58,377/- against renting of immovable property service on the ground that the same had already been confirmed vide an earlier Order-inOriginal dated 17.02.2012. The remaining service tax demand of Rs. 46,92,738/- was confirmed.
It was stated by the appellant that the Commissioner (Appeals) has extended the benefit of Section 80 of the Finance Act, 1994 and argued that the Commissioner (Appeals) did not have the power to grant immunity to the appellant from the imposition of penalty as the service tax law does not make a distinction between the private sector and public sector for liability of interest and penalty.
The Rajasthan Financial Corporation has a network of branch offices wherein all entrepreneurs can approach loans. The seed capital scheme is operated by the notified State Industrial Development Corporations and the State Financial Corporations as an agent of IDBI. It envisages the extension of assistance for meeting the risk capital requirement of entrepreneurs. All those interested in availing of the loan, approach one of the facilitating centres and loan forms is purchased.
A two-member bench comprising of Mr Justice Dilip Gupta, President and Ms Hemambika R Priya, Member (Technical) observed that the said service charge is a financial charge on account of providing financial services of loans and advances.
The Tribunal held that service tax is leviable on the service charge, realized on Working Capital Term Loan by the appellant and there was certainly a bonafide belief of the Appellant that no service tax was leviable on the financial services provided by them. The Tribunal upheld the waiver of penalty under section 80 of the Act by the Commissioner (Appeals). Further upheld the demand of Rs. 16,99,443/- with applicable interest and set aside the remaining demand.
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