Facts –

• The Respondent, M/s. Power Finance Corporation, is engaged in providing service under the category of banking and other financial services  contemplated under section 65(12) of the Finance Act, 1994.
• Pursuant to the audit, Department noticed that the respondent was providing loans for energy and energy efficiency projects, State Electricity Boards and private parties and even though the respondent had earned Rs. 08,94,64,916/- as premium of interest for restructuring of loans in 2008-2009 and Rs. 06,76,027/- during 2007- 2008 but the respondent treated these amount as interest income and did not pay service tax on it.
• Accordingly, a show cause notice dated 31.01.2011 was issued on the ground that restructuring premium charged by the respondent falls under “lending” and, accordingly, would be leviable to service tax under “banking and other financial services‟.
• Revenue being aggrieved by the decision of Commissioner Appeals, has filed this Appeal before the Tribunal.

Issue –

• Whether premium on interest restructuring of loan is leviable to service tax?

Order –

• The Tribunal observed that the premium charged by the respondent from its customers due to interest restructuring is nothing but net present value of loss of interest.
• Therefore, Tribunal rejected the contention that restructuring premium charged by the respondent would fall under lending.
• Further, relying on the decision of larger bench of Tribunal in the case of Repco Home Finance Ltd., it was held that premium paid on interest restructuring in the form of foreclosure is not leviable to Service tax.
• Hence, it was concluded that interest restructuring charges are outside the ambit of banking and other financial services.