2007 (5) TMI 28 - AT - Service Tax

Banking and Financial Service Department contended that appellant were engage in the business of hire purchase finance were liable to service tax under banking and other financial services Held that hire purchase is different from hire purchase finance, so that it is not taxable

Summary

Issues:
- Confirmation of service tax demand and education cess
- Interpretation of hire purchase finance under Section 65(10) of the Finance Act, 1994
- Distinction between hire purchase and hire purchase finance agreements

Confirmation of Service Tax Demand and Education Cess:
The case involved an appeal against the Commissioner of Central Excise's order confirming a service tax demand and education cess against the appellants engaged in hire purchase finance. The Commissioner held the appellants liable under Section 65(10) of the Finance Act, 1994, covering "banking and other financial services." The demand period was from 16-7-2001 to 31-3-2005, with penalties imposed under Section 78 and additional daily penalties.

Interpretation of Hire Purchase Finance:
The department argued that there was no distinction between hire purchase and hire purchase finance, contending that both involve the hirer entering into an agreement with a financial service provider. However, the appellants asserted a fundamental difference between the two agreements. The appellants claimed that in hire purchase finance, the title to the goods vests in the purchaser from the beginning, unlike in hire purchase where the goods' title remains with the hire purchase company until full payment. The appellants relied on the Supreme Court's decision in Sundaram Finance Ltd. v. State of Kerala to support their argument, emphasizing the distinction between hire purchase and hire purchase financing agreements.

Distinction between Hire Purchase and Hire Purchase Finance Agreements:
The Tribunal analyzed the distinction between hire purchase and hire purchase finance agreements based on the Supreme Court's decision in Sundaram Finance Ltd. v. State of Kerala. The Court's ruling clarified that hire purchase finance involves the customer becoming the owner of the goods from the beginning, unlike hire purchase where ownership transfers only after full payment. The Tribunal concluded that hire purchase finance, as engaged in by the appellants, falls outside the scope of Section 65(10) of the Finance Act, 1994. Consequently, the impugned order confirming the service tax demand and education cess was set aside, and the appeal was allowed.

This comprehensive analysis of the judgment highlights the key issues addressed, the arguments presented by both sides, and the legal interpretation that led to the Tribunal's decision in favor of the appellants engaged in hire purchase finance.