2008 (9) TMI 174 - AT - Service Tax

Banking and Financial Services - appellants had only been lending money for interest and in the strict terms they had not been carrying out the hire purchase activity - their activity would be subjected to Service Tax under the category of Banking and Financial Services only with effect from 10.9.2004 no any justification for the demand of Service Tax, interest and also imposition of equal penalty invoking the longer period

Summary

Issues:
Demand of Service Tax for the period from 16.7.2001 to 9.9.2004, imposition of interest under Section 75, imposition of penalty equal to the Service Tax demanded, interpretation of "Banking and Financial Services," invocation of the longer period for taxation.

Analysis:

1. Demand of Service Tax and Imposition of Interest and Penalty:
The appeal was filed against an Order-in-Original demanding Service Tax for a specific period, along with interest and penalty. The Commissioner invoked the longer period for taxation under Section 73(2) of the Finance Act. The appellants contested this demand, arguing that they started paying Service Tax only after an amendment on 10.9.2004, which expanded the scope of taxable services. They emphasized that their activities did not fall under the category of "Banking and Financial Services" for the relevant period. The appellants relied on legal opinions, including one by Justice K.S. Paripoornan, which supported their position that they were not liable for Service Tax before 10.9.2004.

2. Interpretation of "Banking and Financial Services":
The appellants clarified that they were solely lending money to a specific entity and were not engaged in hire purchase activities. They presented agreements and legal opinions to support their argument that Service Tax was only applicable post the aforementioned amendment. They referenced decisions by various Tribunals and the Supreme Court to distinguish between "hire purchase" and "hire purchase financing," asserting that their lending activities did not constitute the former.

3. Invocation of Longer Period and Legal Justification:
The Commissioner, however, relied on the same legal opinion by Justice K.S. Paripoornan to categorize the appellants under "financial leasing service" and justify invoking the longer period for taxation. The Appellate Tribunal, after careful consideration, found that the appellants were not involved in hire purchase activities and were liable for Service Tax only from 10.9.2004 onwards. The Tribunal concluded that there was no justification for the demand of Service Tax, interest, and penalty for the earlier period. The decision was supported by legal precedents cited during the proceedings.

In conclusion, the Appellate Tribunal set aside the impugned order, allowing the appeal and providing consequential relief to the appellants. The judgment highlighted the importance of correctly interpreting the scope of taxable services and ensuring that tax demands are justified based on the specific activities conducted by the taxpayer.