Relief of Bajaj Finance: CESTAT Quashes Demand of Service Tax in Respect of Amount collected as Bouncing of cheques on ground of Penal Nature of Amount [Read Order]

The Mumbai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed the demand of service tax in respect of the amount collected as bouncing of cheques on the ground of the penal nature of amount and are not towards consideration for any service and granted relief to the Bajaj Finance.

Bajaj Finance Ltd, the appellant assessee was providing taxable services under the category ‘Banking and Other Financial Services’ as per the Finance Act, 1994, and engaged in the business of providing various types of finance such as auto loans, personal loans, consumer durable loans, loans against property, etc. to various customers/borrowers. 

The assessee had entered into agreements with their customers/borrowers for providing loans to them and collected various charges from customers/borrowers such as processing fees, documentation fees, logging fees, loan statement issuance charges, etc. as per terms and conditions of the loan agreement. 

The assessee appealed against the order passed by the Commissioner of Central Tax and Goods and Service Tax for confirming the demand for service tax and the imposition of penalty along with interest. 

Vinay Jain, the counsel for the assessee contended that the demand of service tax in respect of the amount collected on account of bouncing of cheques and cancellation of orders was also not sustainable and these amounts are penal and not towards consideration for any service. 

Nitin Ranjan, the counsel for the department relied on the decisions made by the lower authorities and contended that the penal charges and bounce charges paid by the borrower for default in payment of EMI/dishonor of payment instrument was a consideration and such a default/delay/non-payment/dishonor of payment instrument is tolerated by the appellants on payment of an amount as agreed upon in the agreement and it was a declared service of ‘agreeing to tolerate an act or a situation’ under section 66 E(e) of the Finance Act. 

Also submitted that the penal Charges and bounce charges paid by borrowers were a consideration for service rendered by the assessee and service tax was thus payable on such consideration by confirming the adjudged demands. 

The Bench observed that the impugned order holding that penal interest and bouncing charges received by the appellants as “consideration” for “tolerating an act”, and are leviable to service tax under section 66E(e) of the Finance Act cannot be sustained. 

The two-member bench comprising S.K Mohanty (Judicial) and M.M Parthiban (Technical) quashed the demand of service tax on the assessee on the ground of the penal nature of the amount received by the assessee from the borrowers. 

To Read the full text of the Order CLICK HERE

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