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S TAx on prepayment Charges

This query is : Resolved 
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(Querist)
07 August 2008 We at our bank levy prepayment charges on our customers for early repayment of loans.
Are the prepayment charges( charge by all banks) are also liable to service tax?
pls confirm it with support of notification if any in this regard by CBEC or any other authorities.
and are we right in charging the customers with service tax as we treat it as service.
Urgent reply pls.
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S.Srinivasaraghavan

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S.Srinivasaraghavan (Expert)
07 August 2008 Prepayment charges are levied only to compesate the loss of interest the bank may suffer due to prepayment of a loan. There is no service involved here to levy service tax.
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