Order Date – 20 April 2023

Parties: Clix Capital Services Pvt. Ltd. (Earlier GE Money Financial Services Pvt. Ltd.) Vs Commissioner of Service Tax, Chennai

Facts – 

• The Appellant, Clix Capital Services Pvt. Ltd. (Earlier GE Money Financial Services Pvt. Ltd.) is a non-banking financial services company and is engaged in the business of providing various services to its customers like the personal loans, sales finance, auto finance, lease and cash card services.
• Consequences to investigation by the department show cause notices were issued in respect of the period from 01.07.2003 to 30.03.2008 alleging that service tax shall be leviable on foreclosure and penal charges under the category of ‘Banking and other financial services’ and on insurance administration fees under the category of ‘Business Auxiliary Services’ under section 73 of the Finance Act, 1994

Issue – 

• Whether the appellant is required to pay Service tax on foreclosure and penal charges and insurance administration fees?

Order – 

• The Tribunal observed that regarding the issue of foreclosure charges the larger bench of the Tribunal in the case of Repco Home Finance Ltd. has considered the issue and has held that such charges are not liable to service tax. Hence by following the decision of the larger bench of the Tribunal held that the demand on foreclosure charges cannot sustain 
• As regards the demand of service tax on penal charges, the Tribunal relied on the decision in the case of Rohan Motors Ltd. wherein it has been held by the Tribunal that the demand of service tax on the amount collected on account of bouncing of cheques is not sustainable as such amount is penal in nature and is not towards consideration for any service. Further held that the amounts collected as penalty/penal charges penal charges are not chargeable to service tax as the same are not ‘consideration’ under the finance Act.
• From the definition of BAS, for a transaction to be covered under the taxable category of BAS, the service rendered must be auxiliary to some business activity of the service recipient. In the present case the borrowers are individuals who are availing personal loans and these loans have not been availed for any business or commercial purpose and hence the insurance administration service provided by the appellant is not classifiable under business auxiliary service.
• The appeal is allowed