2005 (8) TMI 4 - HC - Service Tax

Banking Services NBFC Basic conditions must be satisfied before imposing any service tax. Period before 16-8-2002

Summary

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. Validity of the show cause notice issued by the Assistant Commissioner of Customs and Central Excise.

Issue-wise 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. Section 65(90) defines "Taxable service" as any service provided to a customer by a banking company or a financial institution, including a non-banking financial company, in relation to banking and other financial services. The petitioner argued that they 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, as they neither carried on any non-banking financial activity nor received any deposits as their principal business during the financial year 2001-2002.

2. Liability to Pay Service Tax for the Period from 16-7-2001 to 15-8-2002:
The petitioner contended that they were not liable to pay service tax for the period from 16-7-2001 to 15-8-2002 as they were not a non-banking financial company during that period. The respondents argued that the petitioner had a valid certificate of registration as a non-banking financial company and thus fell within the definition of a non-banking financial company under Section 45-I(f)(ii) of the Reserve Bank of India Act, 1934. The court held that merely having a certificate of registration was not sufficient to classify the petitioner as a non-banking financial company; it must also be established that the petitioner's principal business was the receipt of deposits or lending of money.

3. Imposition of Interest and Penalties under Sections 75, 76, 77, and 78 of the Finance Act, 1994:
The show cause notice issued to the petitioner demanded service tax along with interest under Section 75 and proposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The court noted that the imposition of penalties and interest was contingent upon the determination of whether the petitioner was indeed a non-banking financial company liable to pay service tax during the relevant period.

4. Validity of the Show Cause Notice Issued by the Assistant Commissioner of Customs and Central Excise:
The petitioner challenged the show cause notice on the grounds that it was premature and based solely on the certificate of registration without considering whether the petitioner's principal business was the receipt of deposits or lending of money. The court held that the show cause notice was valid but emphasized that the determination of the petitioner's liability should be based on a thorough examination of the material on record and not merely on the certificate of registration.

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 respondents were directed to examine whether the petitioner's principal business during the relevant period was the receipt of deposits or lending of money. The petitioner was allowed to file an additional reply to the show cause notice, and the respondents were instructed to pass appropriate orders based on the submissions and evidence provided. The writ petition was disposed of without any order as to costs.