No Service Tax on Loan Foreclosure charges collected by banks & NBFCs- CESTAT Larger Bench

CST Vs Repco Home Finance Ltd. (CESTAT Chennai)

Foreclosure charges collected by the banks and non banking financial companies on premature termination of loans are not leviable to service tax under ‘banking and other financial services’ as defined under section 65 (12) of the Finance Act

FULL TEXT OF THE CESTAT JUDGEMENT

Divergent views have been expressed by Division Benches of the Tribunal on the issue as to whether foreclosure charges levied by the banks and non banking financial companies on premature termination of loans are leviable to service tax under the head “banking and other financial services”.

2. In Housing & Dev. Corporation Limited (Hudco) vs. Commissioner of Service Tax, Ahmedabad¹, a Division Bench  of the Tribunal at Ahmedabad held that service tax would be leviable on such charges but in M/s Magma Fincorp Limited. vs. Commissioner of Service Tax, Kolkata,² a Division Bench of the Tribunal at Kolkata held that service tax would not be leviable.

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