The CESTAT, Mumbai and held that the Bajaj Finance is not receiving penal interest and bouncing charges as a consideration for tolerating an act. The service tax cannot be demanded.
The appellant, Bajaj Finance Ltd. is a non-banking financial company, providing various types of loan such as auto loans, loan against the property, personal loans, consumer durable goods loans, etc. to their customers.
The Appellant entered into an agreement with their customers for providing loan and collecting various charges such as processing fees, documentation fees etc. as per the terms and conditions of the loan agreement.
As per the agreement the Appellant will collect penal interest as an additional interest for the number of days delay in payment of EMI and will also collect bounce charges on account of dishonor of cheque given by the customers which is in line with agreed terms and conditions.
A Show Cause Notice was issued by the Revenue Department demanding the service tax on the amount received on account of penal interest and bouncing charges on the ground that the said charges are leviable to service tax in terms of Section 66(E)(e) read with section 65B (22) of the Finance Act, 1994.
The Adjudicating Authority vide an order imposed the demand of service tax on penal interest and bouncing charges collected by the Appellant.
Aggrieved by the Order, the Appellant filed an appeal before the Appellate Authority who vide an order in appeal dated September 07, 2018 confirmed the demand of service tax.
Aggrieved by the Impugned order, the Appellant filed an appeal before the CESTAT, Mumbai praying for quashing the Impugned order on the ground that penal and bounce charges were not consideration for service thus, not leviable to service tax.
The tribunal noted that the government had excluded the interest on delayed payment from the scope of payment of service tax as per the clause (iv) to sub-rule 2 to Rule 6 of the Service tax Rules, 2006 notified vide Notification No. 24/2012- S.T. dated June 06, 2012. The Penal interest and bouncing charges received by the Appellant as consideration for tolerating an act are not leviable to service tax.