No service tax liability on foreclosure charges collected by banks and NBFCs on premature termination of loans

Last updated: 25 February 2023

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The CESTAT Chennai has ruled that banks and Non-Banking Financial Companies (NBFCs) are not required to pay service tax on foreclosure charges collected when a loan is terminated early. The tribunal found that these charges do not fall under the definition of 'Banking and Other Financial Services' as per the Finance Act, 1994. This decision overturns previous orders that had demanded service tax, interest, and penalties on such collections.

Court :
CESTAT, Chennai

Brief :
The CESTAT, Chennai in M/s Sundaram Finance Ltd. [Service Tax Appeal No. 646 and 647 of 2012 dated February 22, 2023] has set aside the orders passed by the Revenue Department levying service tax on Foreclosure Charges ("FC") collected by the assessee. Held that, the FC collected by banks or Non-Banking Financial Company ("NBFC") on premature termination of loans cannot be subject to service tax under "Banking and Other Financial Services ("BOF Services") as defined under Section 65 (12) of the Finance Act, 1994 ("the Finance Act").

Citation :
Service Tax Appeal No. 646 and 647 of 2012 dated February 22, 2023

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1 Year PLAN

1999

(Excl. of GST ₹359)

2 Years PLAN

3499

(Excl. of GST ₹629)

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3 Years PLAN

4999

(Excl. of GST ₹899)

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Judgement posted by

Bimal Jain

Service

FCA, FCS LLB with21 Yrs of Experience inTaxation Indirect and Direct: Education Qualification: B.Com (Hons) Chartered Accountants Company Secretary LLB Qualified SAP FI/CO Consultants Professional Membership: Chairmanof Indirect Tax Committee of PHD Chamber of Commerce Member of Indirec ... Read more

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