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October 2011

(2011) 23 STR 392 (Tri.-Del.) — Small Industries & Development Bank of India v. Commissioner of Central Excise, Chandigarh.

By Puloma Dalal, Jayesh Gogri
Chartered Accountants
Reading Time 2 mins
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Banking and other financial services — Whether foreclosure of loan is towards rendering of service or is ending of service and whether the same can be treated as lending of service.

Facts:
The appellants were engaged in providing banking and financial services. The dispute arose in relation to the amount of Rs.8,06,059 collected on account of premium on pre-payment of direct loans from their customers 1-9-2004 to 31-3-2006. The demand of Rs.82,215 was confirmed against the appellants treating the amount collected as service charges received for services rendered under the category of banking and financial services. The appellants inter alia submitted that the amount received towards re-scheduling of loan and foreclosure of loan is not towards rendering any services and is in fact a case of ending the services.

Held:
Reflecting on the definition of ‘Banking and financial services’ as provided in section 65(10) of the Finance Act, 1994 during the relevant period, the Tribunal observed that the authorities did not indicate as to which sub-clause of the definition of the activity foreclosure falls under. Foreclosure premium was kind of a compensation for possible loss of interest revenue on the loan amount returned by the customers. Setting aside the appeal, it was held that the activity of foreclosure could not be treated as ‘Banking and financial services’.

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