I. HIGH COURT
23. [2020-TIOL-1128-HC-Del.-ST] Bsa Citi Courier Pvt. Ltd. vs. Commissioner of Central
Goods and Services Tax Date of order: 2nd July, 2020
An application under Sabka Vishwas (Legacy Dispute Resolution)
Scheme, 2019 cannot be rejected without giving an opportunity of being heard
FACTS
The petitioner challenged the communication
dated 5th March, 2020 whereby the declaration filed under the Sabka
Vishwas (Legacy Dispute Resolution) Scheme 2019 only for waiver of interest
from April, 2015 to June, 2017 has been rejected without affording any
opportunity of hearing and by stating that – ‘the date of communication
declared is 5th September, 2019 which is beyond the cut-off date (i.e.,
30th June, 2019). Therefore, the application cannot be accepted u/s
125(1)(e) of Chapter V of the Finance Act, 2019’. Revenue submits that the
quantification in the present case was done post 30th June, 2019 and
was communicated to the petitioner for the first time on 5th
September, 2019. Therefore, they cannot rely on the internal correspondences /
communications between different departments of Revenue to contend that the
quantification took place in March, 2019.
HELD
The High Court noted that the impugned communication dated 5th
March, 2020 has been issued without giving an opportunity of hearing to the
petitioner and without considering the case as put forward. Consequently, the
present writ petition and pending application are disposed of by setting aside
the order / communication dated 5th March, 2020 and by directing the
respondent to give a hearing to the petitioner.
II. TRIBUNAL
24. [2020-TIOL-1039-CESTAT-Mad.-LB] Commissioner of Service Tax vs. M/s Repco Home Finance
Ltd. Date of order: 8th June, 2020
Foreclosure charge recovered from customers for premature termination of
loan is in the nature of damages and cannot be considered as a consideration
for a contract leviable to service tax under banking and financial services
FACTS
Divergent views have been expressed by Division Benches of the Tribunal
on the issue of whether foreclosure charges levied by banks and non-banking
financial companies on premature termination of loans are liable to service tax
under the head ‘Banking and other financial services’. The matter has therefore
been placed before the larger Bench.
HELD
The Bench primarily noted that service tax would be leviable only when
an activity is considered to be a service and such service classifies as a
‘taxable service’ defined in section 65(105) of the Finance Act. It is clear
from the definition of ‘consideration’ that only an amount that is payable for
the taxable service will be considered as ‘consideration’. Any amount charged
which has no nexus with the taxable service and is not a consideration for the
service provided does not become part of the value which is taxable u/s 67.
Consideration must flow from the service recipient to the service provider and
should accrue to the benefit of the service provider. There is marked
distinction between ‘conditions to a contract’ and ‘considerations for
the contract’. A service recipient may be required to fulfil certain
conditions contained in the contract but that would not necessarily mean that
this value would form part of the value of taxable services that are provided.
As per section 2(d) of the Indian Contract Act, 1872 consideration
should flow at the desire of the promisor. Thus, if the consideration is not at
the desire of the promisor, it ceases to be a consideration. The banks and
non-banking financial companies are the promisors and the borrowers are the
promisees. The contractual relationship between the banks and non-banking
financial companies and the customers is repayment of the loan amount over an
agreed period. The banks and non-banking financial companies would not desire
premature termination of the loan advanced by them as it is in ‘their interest’
that the loan runs the entire agreed tenure, for the banks thrive on interest earned
from lending activities. As premature termination of a loan results in loss of
future interest income, the banks charge an amount for foreclosure of loan to
compensate for the loss in interest income. It is the customer who has taken
the loan who moves for foreclosure of the loan by making the payment of the
loan amount before the stipulated period, thereby breaching the promise to
service the loan for the agreed period of time.
This results in a
unilateral act of the borrower in repudiating the contract and consequently
breach of one of the essential terms of the loan agreement. A breach of
contract may give rise to a claim for damages. The ‘expectation interest’ is a
popular measure for damages arising out of breach of contract. The foreclosure
charges, therefore, are not a consideration for performance of lending services
but are imposed as a condition of the contract to compensate for the loss of
‘expectations interest’ when the loan agreement is terminated prematurely.
Therefore, foreclosure charges are recovered as compensation for disruption of
a service and not towards ‘lending’ services. The phrase ‘in relation to
lending’ cannot be so stretched as to bring within its ambit even activities
which terminate the activity. Therefore, service tax cannot be levied on the
foreclosure charges levied by the banks and non-banking financial companies on
premature termination of loans under ‘Banking and other financial services’ as
defined u/s 65 (12) of the Finance Act.
