Order Date – 12 June 2023

Parties: M/s. Cholamandalam Investment & Finance Company Ltd. Vs Commissioner of GST & Central Excise

Facts – 

• 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, it was noticed that CIFCL had not paid service tax on the ‘delayed payment charges’ collected from the borrowers who made loan repayments belatedly ie beyond the period stipulated in the agreement.
• The demand on ‘delayed payment charges’ was confirmed and being aggrieved the appellant filed the appeal.

Issue – 

• Whether service tax is payable on delayed payment charges?

Order – 

• The Tribunal observed that the agreement indicates that the provision for delayed payment is not the reason for the agreement but only provides a safeguard to the commercial interest of the appellant. The penal payments in this case are charged because there is an unintended non-compliance to the terms of the agreement which cannot be held to be a consideration for the taxable service rendered by the appellant.
• Hence the penal payment of ‘delayed payment charges’, cannot be held to be ‘consideration’ as per Explanation (a) to section 67 for providing a loan to any person as a taxable service, classifiable under ‘Banking and Other Financial Services’ of FA 1994, for the period prior to 30/06/2012.
• The service tax could not be levied on ‘delayed payment charges’ collected by the appellant from their customers from 01.07.2012 also as it was held in the case of coordinate Bench of this Tribunal in the case of South Eastern Coalfields Ltd. Vs. Commissioner of CGST and Central Excise.
• As the issue does not survive on merits for the entire period of both the show cause notices, all the other issues related to valuation, interest and penalties etc. also do not survive.