2005 (8) TMI 736 - HC - Customs

2019 (11) TMI 67 - Tri

Issues Involved:
1. Applicability of Section 65(90) read with Section 65(11) of the Finance Act, 2001 to the petitioner company up to 16-8-2002.
2. Liability of the petitioner to pay service tax for the period from 16-7-2001 to 15-8-2002.
3. Imposition of interest and penalties under Sections 75, 76, 77, and 78 of the Finance Act, 1994.
4. Classification of the petitioner as a non-banking financial company (NBFC) under Section 45-I(f) of the Reserve Bank of India Act, 1934.
5. Validity of the show cause notice issued by the Assistant Commissioner of Customs and Central Excise.

Detailed Analysis:

1. Applicability of Section 65(90) read with Section 65(11) of the Finance Act, 2001:
The petitioner sought a declaration that Section 65(90) read with Section 65(11) of the Finance Act, 2001 did not apply to them up to 16-8-2002. The petitioner argued that during the financial year 2001-2002, it did not carry on any non-banking financial activity nor received any deposits as its principal business, and thus, it did not fall within the purview of a non-banking financial company as defined under Section 45-I(f) of the Reserve Bank of India Act, 1934. Consequently, the petitioner contended it was not required to return any part of its turnover to service tax for the relevant financial year.

2. Liability to Pay Service Tax:
The 1st respondent issued a show cause notice demanding payment of Rs. 28,70,494/- towards service tax for the period from 16-7-2001 to 15-8-2002. The petitioner contended that it was only from 16-8-2002 that services rendered by a body corporate to a customer were brought within the purview of service tax. The court noted that Section 65(90) defined "taxable service" to include services provided by a non-banking financial company in relation to banking and other financial services. The court emphasized that the definition of a non-banking financial company under Section 45-I(f) required the company to have as its principal business the receiving of deposits or lending, in addition to being a company.

3. Imposition of Interest and Penalties:
The show cause notice also proposed interest under Section 75 and penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The court observed that the imposition of penalties was contingent upon the classification of the petitioner as a non-banking financial company and its liability to pay service tax for the relevant period.

4. Classification as a Non-Banking Financial Company:
The 2nd respondent argued that the petitioner obtained a license as a non-banking financial company under Section 45 of the Reserve Bank of India Act, and the certificate of registration indicated the petitioner was taking deposits. The court held that the certificate of registration alone did not suffice to classify the petitioner as a non-banking financial company. It was necessary to establish that the principal business of the petitioner during the relevant period was the receipt of deposits or lending money.

5. Validity of the Show Cause Notice:
The court noted that the show cause notice indicated the petitioner was providing services as a depository participant and collected substantial amounts during the period in question. The court emphasized that whether the petitioner's principal business was receiving deposits or lending money during the relevant period needed to be examined by the 2nd respondent based on information gathered and the petitioner's reply to the show cause notice.

Conclusion:
The court concluded that the petitioner could not be classified as a non-banking financial company solely based on the certificate of registration. The 2nd respondent was directed to examine whether the petitioner's principal business during the relevant period was the receipt of deposits or lending money. The petitioner was permitted to file an additional reply to the show cause notice within fifteen days. The 2nd respondent was instructed to pass appropriate orders considering all objections raised by the petitioner. The writ petition was disposed of with no order as to costs.

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