By TIOL News Service

AHMEDABAD, DEC 07, 2014: IN the appellant's own case the CESTAT had held that t he activity of foreclosure of loans cannot be treated as "banking and financial services" and accordingly thedemand of service tax on such amount received towards foreclosure was held to be not sustainable. [See 2011-TIOL-581-CESTAT-DEL] The period involved was 1.9.04 to 31.3.06 and the judgment was delivered on 20.01.2011.

Nonetheless, for the later period, the lower authorities have again confirmed the Service Tax demand and the appellant had no option but to file an appeal before the CESTAT. Incidentally, the appellant had chosen to deposit the entire amount of Service Tax liability, interest thereof and 25% of the Service Tax liability as penalty before approaching the Tribunal. This, perhaps, is because of a contrary judgment delivered by the Ahmedabad Bench of the CESTAT on 25.11.2011 in the case of Housing & Development Corporation Ltd (HUDCO)- 2011-TIOL-1606-CESTAT-AHM.

When the matter was heard by the Bench, the appellant submitted that since there are two conflictingviews, the matter may be referred to Larger Bench and for which proposition, they relied on the judgment of the Apex Court in the case of CCE Mumbai vs. Mahindra & Mahindra Ltd - 2014-TIOL-71-SC-CX.

The AR agreed.

The Bench observed -

"4. …, we find that the tax liability has been confirmed on the ground that the appellant has accepted pre-payment charges towards the settlement of the loan extended to their customers. We find that in the appellant's own case, the co-ordinate bench of the Tribunal has taken a view holding that such activity of fore-closure of the loan does not attract Service Tax liability. This bench in the case of HUDCO has taken a diagonally opposite view after considering the judgment in the case of Small Industries & Development Bank of India (supra). Since there are two different views expressed by two different benches, we are constrained to refer the matter to Hon'ble President for constituting a Larger Bench to decide as to which view is correct."

The Registry was directed to place the file before the President.

The Bench also observed that since the appellant had already deposited the amount of Service Tax liability, interest and 25% of the tax liability and since the matter had been referred to Larger Bench, the said deposits are enough deposit to hear and dispose the appeal on merit. Accordingly, the pre-deposit of the balance amounts was waived and the recovery was stayed.

(See 2014-TIOL-2463-CESTAT-AHM)