The Principal Commissioner Of Central Tax vs. M/S. Spandhana Sphoorty Financial LTD
Facts
The Principal Commissioner of Central Tax, GST Bhavan (the Revenue) appealed against an order of the Customs, Excise and Service Tax Appellate Tribunal (Tribunal). The respondent, M/s. Spandhana Sphoorty Financial Ltd. (the assessee), is a non-banking financial institution engaged in microfinance. The assessee collects interest on pre-closure of loan accounts. The Revenue issued a show cause notice for the period 2006-07 to 2010-11, demanding service tax of Rs. 3,81,69,738/- on interest received from pre-closure of loans, amounting to Rs. 35,64,15,174/-. The Tribunal, in its impugned order dated 07.02.2024, allowed the assessee's appeal.
Held
The Court held that the issue of whether service tax is payable on foreclosure charges collected by non-banking financial companies on premature termination of loans under 'banking and other financial services' was no longer res integra. The Tribunal, in its Larger Bench decision in CST, Chennai vs. Repco Home Finance Ltd. [2020 (42) GSTL 104 (Trib. LB)], had answered this question in the negative, stating that foreclosure charges are not leviable to service tax. The Revenue conceded that this decision had attained finality. The High Court found no infirmity or perversity in the Tribunal's impugned order, which followed the Larger Bench decision. Therefore, no substantial questions of law arose for consideration. The appeal was dismissed.
Key Issues
1. Whether service tax is payable on 'foreclosure charges' collected by non-banking financial companies on premature termination of loans under the category of 'banking and other financial services' as defined under Section 65(12) of the Finance Act? The Revenue contended that service tax is leviable on such charges. The assessee argued, relying on a Larger Bench decision of the Tribunal in CST, Chennai vs. Repco Home Finance Ltd. [2020 (42) GSTL 104 (Trib. LB)], that foreclosure charges are not leviable to service tax. The Revenue acknowledged that the decision in CST, Chennai (supra) had attained finality as it was below the monetary limit for challenge and that the issue was pending before the Gujarat High Court.
Sections Cited
Section 65(12)
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[ 3418 I IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNE AY ,THE THIRTEENTH DAY OF NOVEMBER TWO THOUSAND AND TWENTY FOUR PRESENT THE HONOURABLE THE CHIEF JUSTICE ALOK ARADHE AND THE HONOURABLE SRI JUSTICE J. SREENIVAS RAO CENTRAL EXCISE APPEALS NO: 25 OF 2024 central Excise Appeal filed under section 35G of the central Excise Act, 1944 against the Order datdci 07.02.2024 passed in Final Order No. N30O7412024 in $rvice Tax Appeal No. 3085 of 2012 on the file of the Customs, Excise and Service Tax Appellate Tribunal, Regional Bench at Hyde_rabad ag^ainst the order dated 07.08.2012 passed in Old ruo. 4Ot2O12-Ad1n (Commr) ST on the file.of the Commissiondr of Customs and Central Excise, Hyderabad-lV Commissionerate. Between: The Principal Commissioner of Central Tax' GST Bhavan, H.No-1-98 / 7 / 43' VIP Hills, iaihind Enclave, Madhapur, Hyderabad, Telangana -500 081' ...Appellant AND M/s. Spandhana Sphoorty Financial Ltd., Plot No.79, Care Crystal, Vinayak Nagar, Gachibowli, Telangana - 500 001. ...ResPondent Counsel for the Appellant : Ms. Bokaro Sapna Reddy, Senior SC for CBIC) Counsel for the Respondent : None appeared The Court delivered the following: JUDGMENT
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