By TIOL News Service

NEW DELHI, APR 13, 2014: A SCN dated 23.10.2009 was issued alleging that the appellant, a housing finance Company and a subsidiary of the Bank of Baroda had provided BAS inasmuch as it had received consideration from its customers towards fee for permitting pre-closure of loans; had failed to disclose the consideration so received in its ST-3 returns; failed to remit the service tax due thereon; and thereby willfully suppressed the relevant facts with a view to evade remittance of tax. The extended period of limitation was invoked, proposing levy of service tax, interest and penalties, for the period September 2004 to March 2009.

The appellant had contended that its activities do not fall within the ambit of business auxiliary service; and alternatively that they fall outside the ambit of banking and financial services, as well.

The adjudicating authority confirmed the demand along with interest and penalties and the Commissioner(A) observed that whether it is business auxiliary service or Banking and other Financial Services, since both were in operation during the material time and the rate of service tax is also identical, the correct classification of the service is of no consequence.

The appellant is before the CESTAT.

It is submitted that the fee charged by the appellant for fore-closure of loans would not fall within the ambit of lending, since fee was charged not for lending/loan but for fore-closure of a loan.

The Bench observed that from the material on record, it was clear that neither the primary nor the appellate authority chose to specify under what taxable service category the appellant was liable to remit service tax and since the consideration received by the appellant from its customers as fee is for providing the facility of pre-closure of loans, the activity may perhaps fall within the generic ambit of lending, as defined Banking and other Financial Services.

Nonetheless, the Bench concluded -

"…We are not required in this appeal to record a conclusion as to whether the transaction under issue fall within the ambit of lending and therefore within the scope of Banking and other Financial Services. This is so since neither the Show Cause Notice, the primary adjudication order nor even the appellate adjudication order have either alleged or recorded a conclusion that the services provided by the appellant/customer fall within the ambit of Banking and other Financial Services. At any rate, the Show Cause Notice clearly specified that the appellant had provided only business auxiliary service. There was not even a whisper of an allegation that alternatively the services provided by the appellant may be classifiable as Banking and other Financial Services."

Holding that the confirmation of the demand of service tax is unsustainable on the ground of classification itself, the CESTAT observed that it was not inclined to undertake a detailed analysis of the other contention of the appellant that the proceedings are unsustainable for unwarranted invocation of the extended period of limitation.

In fine, the appeal was allowed.

(See 2014-TIOL-560-CESTAT-DEL)