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2024 (2) TMI 1132 - AT - Service TaxLevy of service tax - body corporate or not as provided in the definition of banking and financial services - interest income under the head Lease and Equipment Finance Income - interest income-rental - interest income-funding - suppression of facts or not - Extended period of Limitation - HELD THAT - This issue has been considered by various Benches of the Tribunal and here we may refer to the observation of the Tribunal in the case of KANSAI NEROLAC PAINTS LTD. VERSUS COMMISSIONER OF CUSTOMS, MUMBAI 2017 (2) TMI 262 - CESTAT MUMBAI where it was held that Hence, banking and other financial services provided by a banking company or a financial institution or a non- banking financial company or any other service provider similar to a bank or a financial institution are liable to service tax under Section 65(105)(zm) of the Finance Act, 1994. Department of Posts is not similar to a bank or a financial institution and hence does not fall within the category of any other similar service provider. Further, in the present case service tax under banking and other financial service has been demanded from the appellant on the lease and finance income received in respect of contract entered into prior to 16.08.2002. It is pertinent to note that financial leasing services provided by the appellant i.e. body corporate are taxable only from 16.08.2002 whereas in the present case service tax is sought to be demanded on the basis of the agreement prior to 16.08.2002 hence the impugned order confirming demand of service tax is liable to be set aside on this ground alone. Interest income-rental - HELD THAT - The appellant received rent for renting equipment, further the perusal of sample copies of agreements will indicate that the appellant is only providing its equipment on rent basis to its customers and is not providing any financial leasing services. These services is entirely different from the service of financial leasing for the purpose of levy of service tax. Interest income-funding - HELD THAT - For this purpose the appellant entered into equipment finance agreement with the customers which is on record whereby the purchaser could either make one time down payment for purchasing the equipment or could make the payment in installments as agreed between them. The ownership in the machine is not transferred to the customer in the beginning and the customer was to make payment in specified installments. This arrangement of sale and purchase cannot be subjected to service tax under financial leasing as has been done in the impugned order - Further, as per Section 67 of the act the interest income on loans is excluded from the value to calculate service tax on any service and the circular no. 80/10/2004-S.T. dated 17.09.2004 reiterates the same position. Further, as regards the finance income facility management, it is seen that this amount is received by the appellant for providing printing/copying equipment to the customers along with operator at the premises of customers and the customer paid to the appellant per impression charges based on the usage of the machine during a month - Ld. Commissioner has gone on presumption that this amount of Rs. 9,37,76,673/- has been received by the appellant for providing financial leasing service without taking into consideration the actual nature of the transaction. Hence, the demand is liable to be set aside. Extended period of limitation - suppression of facts or not - HELD THAT - All the facts were in the knowledge of the department w.e.f. 2004 i.e. the appellant got itself registered with the service tax authorities under the banking and financial services and paid service tax on agreements entered into after 16.08.2002. Before issuing the show cause notice dated 22.10.2007 a series of correspondence transpired between appellant and department which shows the department was aware of the transactions but in spite of that the show cause notice was issued after delay of three years alleging suppression. Further, the appellant is not liable to pay service tax on agreements entered into prior to 2002. Further, the appellant was maintaining proper records of service tax paid and regularly filed returns. Moreover, the issue involved in the present case relates to interpretation of complex legal issues. Further, the appellant was subjected to regular audits and the demand of service tax is raised on the basis of audit objections. The impugned order is not sustainable in law and is set aside - appeal allowed.
Issues Involved:
1. Classification of the appellant's services under "Banking and Other Financial Services" (BOFS). 2. Applicability of service tax on interest income from rental, funding, and facility management. 3. Invocation of the extended period of limitation for the demand of service tax. 4. Correctness of the computation of the service tax demand. Summary: Classification of Services under BOFS: The appellant argued that it is not a "body corporate" engaged in providing banking services, thus not liable for service tax under BOFS. The Tribunal referred to Section 65(12)(a) of the Finance Act and clarified that services under BOFS are provided by a banking company, financial institution, or any other body corporate. The Tribunal noted that the appellant's classification was incorrect, as it was not providing financial leasing services but rather renting equipment, which is different from financial leasing. Applicability of Service Tax on Interest Income: The Tribunal examined the nature of transactions under three heads: Interest Income-Rental, Interest Income-Funding, and Finance Income-Facility Management. The appellant provided equipment on an operating lease, which did not transfer ownership to the lessee, thus not constituting financial leasing. Interest income on loans is excluded from the taxable value as per Section 67 of the Act and circular No. 80/10/2004-S.T. The Tribunal found that the appellant's activities were not subject to service tax under BOFS but were covered under Business Support Service (BSS) from 01.05.2006, which the department accepted. Invocation of Extended Period of Limitation: The Tribunal held that the extended period of limitation could not be invoked as there was no willful suppression or misrepresentation by the appellant. The appellant had registered under BOFS from 01.10.2004 and paid service tax on agreements post-16.08.2002. The department was aware of the appellant's activities through regular audits, and the demand was based on audit objections. The Tribunal cited the Delhi High Court's decision in Bharat Hotels Ltd., emphasizing that mere omission or failure to pay duty without deliberate intention does not justify invoking the extended period. Correctness of Computation: The Tribunal found the computation of the demand incorrect as it did not account for the tax and interest already paid by the appellant. The appellant had paid Rs. 4,94,806/- on agreements post-16.08.2002 and Rs. 2,38,161/- under the Service Tax Amnesty Scheme, 2004, which should be adjusted against the demand. The Tribunal also noted that the appellant was entitled to cum-tax benefits. Conclusion: The Tribunal set aside the impugned order, finding it unsustainable in law. The appeal was allowed with consequential relief as per law. The order was pronounced in the open court on 23.02.2024.
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