M/S. Small Industries And Development Bank Of India v. Cce, Chandigarh .

PER: M.VEERAIYAN This is an appeal against the order of CCE (Appeals) by which the order original authority demanding service tax amounting to Rs.82,215/- alongwith interest stands upheld.

2. Heard both sides.,

3. The relevant facts, in brief, are that the appellants are engaged in providing banking and financial services. The dispute relates to an amount of Rs..8,06,059/- collected on account of premium on pre-payment of direct loans from their customers 1.9.04 to 31.3.06. The original authority in pursuance of SCN dt.26.12.06 confirmed the demand of service tax of 82,215/- treating the amount collected as service charges received for services rendered under the category banking and other financial services, he however did not impose penalty invoking the provisions of section 80 of the Finance Act, 94. The Commissioner (Appeals) has upheld the order of the original authority. 4.1 Learned Advocate for the appellant submits that the amount received towards re-scheduling of loan and fore-closure of loan is not towards rendering any services. In fact, foreclosure of loan is a case of ending the service. The foreclosure charges basically are in lieu of anticipated interest loss and with a view to prevent the customers to indiscriminately seek foreclosure of the loan causing uncertainty to the bank which was due to breach of contract. 4.2 He also submits that the original authority has refrained from imposing any penalty. Under these circumstances, the demand raised by show cause notice dated 26.12.06 invoking extended period is not sustainable.

5. DR reiterates the reasoning and finding of the CCE (A).

6. We have carefully considered the submissions and perused the records. During the relevant period, as per section 65(10) of the Finance Act, 1994, "banking and financial services" means the following services provided by a banking company or a financial institution including a non banking financial company, namely:-

(i) financial leasing services including equipment leasing and hire purchase by a body corporate;

(ii) credit card services;

(iii) merchant banking services;

(iv) securities and foreign exchange (forex) broking;

(v) asset management including portfolio management, all forms of fund management, pension fund management, custodial depository and trust services, but does not include cash management;

(vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisition and advice on corporate restructuring and strategy; and

(vii) provision and transfer of information and data processing:

1. The taxable service, as per section 65(72)(zm) means any service provided, to a customer, by a banking company or a financial institution including a non banking financial company, in relation to banking and other financial services.

2. The definitions of banking, banking company, financial institution and non-banking financial company as per the Banking Regulation Act, 1949 and Reserve Bank of India Act, 1934 are given below:- " banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. "banking company" means any company which transacts the business of banking in India. "financial institution" means any non-banking institution which carries on as its business or part of its business any of the following activities, namely -

(i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own

(ii) - - - - - - - - - - - - - - -- -

(iii) - - - - -- - -- -- - - - - - -

(iv) - - - - - - - - - -- - - - - - - -

(v) - - - - - - - - - - - - - - -- -- -

(vi) - - - - - -- - - - - - - - - -- - "non-banking financial company " means -

(i) a financial institution which is a company;

(ii) a non banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner;

(iii) such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify.

7. The authorities below have not indicated as to which category of the definition the activity foreclosure falls under. Foreclosure is ending the loan already given and cannot be treated as lending to the customers of loan, and in our considered opinion, the same cannot be treated as rendering any services by the financial institution. We agree with the learned advocate that it is a case of withdrawing the services rendered, at the request of the customers, and the foreclosure premium is a kind of compensation for possible loss of interest revenue on the loan amount returned by the customers. Therefore, the activity of foreclosure of loan can not be treated as banking and financial services.

8. Therefore, we set aside the impugned order and allow the appeal with consequential relief as per law. (Pronounced in the open court) (ARCHANA WADHAWA) MEMBER (JUDICIAL) (M.VEERAIYAN) MEMBER (TECHNICAL)