Service Tax not Leviable on Delayed Payment Charges Collected from Customers wef 01.07.2012: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), ruled that service tax not leviable on delayed payment charges collected from customers wef 01.07.2012

The Appellant, M/s. Cholamandalam Investment & Finance Company Ltd. (CIFCL) are engaged in the business of financing activities such as automobile financing, consumer loan, loans against securities etc.

During the course of audit conducted by the officers of the Service Tax Commissionerate, it was noticed that CIFCL had not paid service tax on the ‘delayed payment charges’ collected from the borrowers who made loan repayments belatedly i.e beyond the period stipulated in the agreement.

Two orders have come to be passed by the Principal Commissioner, confirming service tax demands on ‘delayed payment charges’ under relevant sections of the Finance Act 1994, the appellant is in appeal before the Tribunal.

For the period with effect from 1.7.2012 the issue involved is whether the appellant is providing a ‘declared service” as per section 66E(e) of FA 1994.

Revenue is of the view that the delayed payment charges are a consideration for the appellant tolerating the default in payment by the borrower by not exercising the recovery option by sale of securities provided by the borrower to the appellant at the time of securing the loan.

The issue regarding what constitutes a consideration for agreeing to tolerate an act or a situation has been elaborately discussed in South Eastern Coalfields Ltd. Vs. Commissioner of CGST and Central Excise, wherein it was held that the activities, therefore, that are contemplated under section 66E(e), when one party agrees to refrain from an act, or to tolerate an act or a situation, or to do an act, are activities where the agreement specifically refers to such an activity and there is a flow of consideration for this activity.

A Division Bench of the Tribunal comprising CS Sulekha Beevi, Judicial Member and M Ajit Kumar, Technical Member held that “Service tax could not be levied on ‘delayed payment charges’ collected by the appellant from their customers from 01.07.2012 also.”

To Read the full text of the Order CLICK HERE

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