2008 (2) TMI 76 - AT - Service Tax

Manufacture of Vanaspati - leased out certain machinery to another party and collected rental - demand is on the gross amount so collected by the appellants on the basis that equipment leasing by a body corporate is part of banking and financial services u/s 65(10) - appellants are not any non-banking financial company and, therefore, applying ejusdem generis principle, they are prima facie not covered by expression body corporate - waiver of pre-deposit and stay of recovery granted

Summary

Issues:
- Demand of service tax under Section 73 of the Finance Act, 1994 for the period 2004-05 in the category of "banking and financial services" for leasing out machinery.
- Imposition of penalties under Sections 77 & 78 of the Act.
- Interpretation of the term "body corporate" in the definition of "banking and financial services" under Section 65(10) of the Finance Act.
- Application of the ejusdem generis principle to determine coverage under the definition of "banking and financial services."

Analysis:
1. Demand of Service Tax and Penalties:
The lower authorities had demanded service tax and imposed penalties on the appellants for leasing out machinery during the period 2004-05 under the category of "banking and financial services." The demand was based on the gross amount collected by the appellants from leasing the machinery. The appellants contested this demand citing a circular of the Board and previous Tribunal orders. The Tribunal noted the submissions of both sides and found a prima facie case for the appellants.

2. Interpretation of "Body Corporate":
The key issue revolved around the interpretation of the term "body corporate" in the definition of "banking and financial services" under Section 65(10) of the Finance Act. The Tribunal referred to previous Tribunal orders where "body corporate" was interpreted as falling within the purview of a "non-banking financial company." Since the appellants were not a non-banking financial company, the Tribunal applied the ejusdem generis principle to conclude that they were not covered by the expression "body corporate" in the definition. This interpretation led to a waiver of predeposit and a stay of recovery for the service tax and penalty amounts.

In conclusion, the judgment by the Appellate Tribunal CESTAT, CHENNAI addressed the issues of service tax demand, penalties, the interpretation of "body corporate," and the application of the ejusdem generis principle in determining the coverage under the definition of "banking and financial services." The decision favored the appellants based on the interpretation of the term "body corporate" and resulted in a waiver of predeposit and a stay of recovery for the amounts in question.