2014 (11) TMI 754 - AT - Service Tax

Waiver of pre deposit - hire purchase and financial lease service - Held that - On perusal of the decision of the Hon ble Apex Court in the case of Association of Leasing & Financial Service Companies Vs. Union of India (2010 (10) TMI 4 - SUPREME COURT OF INDIA), various provisions of Finance Act, and Service Tax Rules. Prima facie we do agree with the contention of the Ld. Counsel for the applicant that applicant is engaged in the activity of giving loan for earning interest through leasing the vehicles under financial leasing services. As per explanation to Section 67 of the Finance Act, 1994. - Interest on loan is exempted from service tax is not to be included in the taxable service and same has been followed by Rule 6 (2)(iv) of the Service Tax Valuation Rules, 2006. In these circumstances, prima facie we find that applicants have made out a case for complete waiver of pre-deposit. Therefore, we waive the requirement of pre-deposit of entire amount of service tax, interest and penalty and stay recovery thereof during the pendency of the appeals - Stay granted.

Summary

Issues:
Waiver of pre-deposit of service tax, interest, and penalties confirmed against the applicant by the impugned order under the Finance Act, 1994.

Analysis:
The appellant, a Non-banking Finance Company, provided services of hire purchase and financial leasing, comprising principal and interest, interest amount, and processing/management fees. The Revenue contended that the appellant, engaged in financial leasing service, should pay service tax on 10% of interest charges as per notification No. 4/2006. Three show cause notices were issued, leading to confirmation of demands by the Ld. Commissioner, including interest and penalties. The applicant sought waiver of pre-deposit for the impugned demands. The Counsel for the applicant relied on the decision of Association of Leasing & Financial Service Companies Vs. Union of India, stating that interest on loan is not includible in taxable service as per Section 67 of the Finance Act, 1994, and Rule 6 (2)(iv) of the Service Tax Valuation Rules, 2006. The Ld. A.R. argued that the applicant should pay service tax on 10% of interest collected based on the notification.

Upon considering the submissions and relevant legal provisions, the Tribunal agreed with the applicant's Counsel that the appellant is engaged in providing loans for earning interest through financial leasing services. The explanation to Section 67 of the Finance Act, 1994, exempts interest on loans from service tax, a principle reiterated in Rule 6 (2)(iv) of the Service Tax Valuation Rules, 2006. Consequently, the Tribunal found merit in the applicant's case for a complete waiver of pre-deposit. As a result, the requirement of pre-deposit of the entire amount of service tax, interest, and penalty was waived, and recovery stayed during the pendency of the appeals.