2015 (6) TMI 442 - AT - Service Tax

Banking and Financial services - Service tax liability on Leasing of equipments, hire purchase agreements , Business Auxiliary services - Securitization transactions - Collection Commission - Failure to deposit recovered amount as service tax under section 11D of the Central Excise Act, 1944 - Levy of service tax on penal interest , prepayment/termination charges & management fees - Held that - From the ratio laid down by the Hon ble Supreme Court in Sundaram Finance Ltd. s case 1965 (11) TMI 123 - SUPREME COURT OF INDIA , it is crystal clear that the effect of transaction be determined from the terms of the agreement considered in the light of surrounding circumstances and the court has power to go behind the documents and to determine the nature of transaction whatever may be the form of the documents. An attempt has been made by us to analyze the true nature of the transaction between the Appellant and its customers from the agreements/documents placed before us. We find that in almost all the cited agreements/contacts, the Appellant had been approached by the respective customers for procuring/purchasing a vehicle, (except agreement dated 22.03.2000 between the Appellant and M/s.Shiva Cement Ltd. which relate to lease of equipment). We find that the customers were required to pay the amount/value shown in the schedule-II of the agreements in monthly installments for the period specified in schedule-III agreed between the appellant and the customers. We find that most of these transactions are not supported with purchase and allied documents by which it could be ascertained as to the true intention of the parties in advancing/purchasing the equipment/vehicle. Even though theoretically it has been argued that the equipment/vehicle was purchased by the appellant and thereafter leased to the customer s against. lease rent, but examining such agreements, we noticed that some amount was initially paid, thereafter, the remaining amount was paid by the appellant to the dealer and the initial payment is described as down payment, margin money, etc., but it is not clear in all cases as who had paid this initial payment. In the event such margin money is paid by the customer, and from other attendant circumstances it could not be said that the arrangement is as an operating lease and the asset is owned by the Appellant. In the result, we are of the firm opinion that ascertaining of the facts are vital, to application of the principle of law, in the interest of justice this aspect need to be remitted to the ld. Commissioner for verification of the facts in detail and ascertain the true nature of transaction between the appellant and its customers during the period under dispute and arrive at the conclusion whether the transaction/services falls within the scope of taxable services of banking and other financial services defined at Section 65(12) of Finance Act, 1994. Taxability of securitization transactions - From the submissions advanced by both sides we find that the securitization as narrated by the ld. Advocate, taking cue from the RBI guidelines, is claimed by the Appellant to have been limited to the first stage, however, whether it involved the second stage of rendering service has not been scrutinized/examined by the ld. Commissioner before deducting the said securitization amount from the gross taxable value for two financial years considering the same as non-taxable under the Finance Act, 1944. Therefore, in our opinion the true transaction of securitization contracts entered into with respective Banks/customers ought to be examined before arriving at any conclusion whether the amount claimed by the appellant is the result of a sale transaction or service as argued by the revenue, and accordingly are leviable to service tax or otherwise. Therefore, this aspect also needs to be remitted to the Ld. Commissioner for consideration afresh. Taxability of Collection Commission - After analysis of the agreement/transaction documents following the principle laid down in Pagaria Auto centre s case 2014 (2) TMI 98 - CESTAT NEW DELHI (LB) , the Tribunal in a subsequent case viz. Atamaram Auto Enterprises 2015 (6) TMI 440 - CESTAT NEW DELHI held that such services are taxable being in the nature of promoting or marketing services provided by the Banks under the heading of Business Auxiliary services.In the present case we find that the Ld. Commissioner has without scrutiny of the agreements/contracts with the client Banks, arrived at the conclusion that the service rendered by the Appellant are in the nature of promoting the business of client-banks and hence classifiable under BAS. As held in Pagaria Auto centre s case, it is necessary to examine/scrutinize the transaction to ascertain whether it is BAS or otherwise. Therefore, this issue also needs to be remitted to the Ld. Adjudicating authority for consideration afresh. Non deposit of amount collected as service tax - It has not been substantiated by the appellant as to how the said contingency deposits had been collected from the customers, that is, whether it was collected in lump sum or was shown as deposits in the respective agreements/contracts or Bills raised by the appellants or any other manner during the relevant period. Advancing the bare claim that collection was towards contingency deposit could not lead to any conclusion that these amounts have been collected as deposits, not as representing service tax as alleged by the department since at the initial stage of investigation the said facts were admitted by the Assistant Vice President (AVP) of the appellant/ Thus, it is necessary to lead more evidences by the appellant to substantiate their claim that the amount of ₹ 69,52,945/- which was collected from the customers/clients were nothing, but contingency deposits and not service tax. In the interest of justice, therefore, the Appellant be provided a further fair chance to produce before the adjudicating evidence in favour of the said claim. So this issue has also needs be remanded for consideration afresh. - Decided partly in favour of assessee. Penal interest , prepayment/termination charges & Management fees - Tribunal in the case of Bank of Baroda 2014 (3) TMI 653 - CESTAT NEW DELHI & Small Industries& Development Bank of India 2011 (1) TMI 495 - CESTAT, NEW DELHI held that penal interest, prepayment charges are not be leviable to service tax under the category of banking and financial services. Following these decisions we re of the view that service tax is not payable on the penal interest and prepayment/termination charges. With regard to the Management fees the Ld. Commissioner is directed to record a detailed finding supported with reasons on its leviability to service tax. - Decided partly in favour of revenue.

Summary

Issues Involved:
1. Taxability of services under 'Banking and Financial Services'.
2. Classification and taxability of 'Hire Purchase' and 'Hire Purchase Finance'.
3. Taxability of 'Securitization Transactions'.
4. Classification and taxability of 'Collection Commission' under 'Business Auxiliary Service'.
5. Recovery of amounts collected as service tax under Section 11D of the Central Excise Act, 1944.
6. Inclusion of management fees, penal interest, and termination charges in the taxable value.
7. Applicability of extended period of limitation and penalties.

Detailed Analysis:

1. Taxability of Services under 'Banking and Financial Services':
The Tribunal analyzed the agreements submitted by the appellant to determine if the services fall under the taxable category of 'Banking and Financial Services' as defined under Section 65(12) of the Finance Act, 1994. The Tribunal noted that the Commissioner had not examined the nature of transactions in detail and thus remanded the matter back for a thorough examination of agreements and supporting documents to ascertain the true nature of transactions.

2. Classification and Taxability of 'Hire Purchase' and 'Hire Purchase Finance':
The Tribunal referred to the Supreme Court's judgment in Sundaram Finance Ltd.'s case to distinguish between 'Hire Purchase' and 'Hire Purchase Finance'. It was noted that the Commissioner did not scrutinize the agreements to determine the true nature of transactions. The Tribunal remanded the issue for detailed verification of agreements to ascertain whether the transactions fall under 'Hire Purchase' or 'Hire Purchase Finance'.

3. Taxability of 'Securitization Transactions':
The appellant claimed that securitization transactions were in the nature of sale and not services. The Tribunal noted that the Commissioner had allowed deductions for securitization transactions without proper verification. The Tribunal directed a detailed examination of securitization agreements to determine if these transactions were sales or services and accordingly decide their taxability.

4. Classification and Taxability of 'Collection Commission' under 'Business Auxiliary Service':
The Tribunal observed that the Commissioner had classified 'Collection Commission' under 'Business Auxiliary Service' without scrutinizing the agreements. Referring to the Larger Bench decision in Pagaria Auto Centre's case, the Tribunal remanded the matter for a detailed examination of agreements to ascertain if the services fall under 'Business Auxiliary Service'.

5. Recovery of Amounts Collected as Service Tax under Section 11D:
The appellant contended that only a portion of the amount was collected as service tax, and the rest was contingency deposits. The Tribunal noted that the appellant failed to substantiate this claim with evidence. The matter was remanded to allow the appellant to provide evidence supporting their claim that the amount collected was not entirely service tax.

6. Inclusion of Management Fees, Penal Interest, and Termination Charges in the Taxable Value:
The Tribunal noted that the Commissioner had not recorded findings on the inclusion of management fees. It was observed that penal interest and termination charges should not be included in the taxable value, following the Tribunal's decisions in similar cases. The Tribunal directed the Commissioner to examine the transactions relating to management fees and provide reasons for their taxability.

7. Applicability of Extended Period of Limitation and Penalties:
The Tribunal refrained from making any observations on the applicability of the extended period and penalties, given that the facts were not clear. The Commissioner was directed to decide on these aspects after analyzing the facts and evidence in the remand proceedings.

Summary:
The Tribunal remanded the matter to the Commissioner for a detailed examination of agreements and supporting documents to determine the true nature of transactions and their taxability. The issues of securitization, collection commission, and recovery under Section 11D were also remanded for fresh consideration. The demand on penal interest and termination charges was directed to be dropped, and the transactions relating to management fees were to be scrutinized. The applicability of the extended period and penalties was left to be decided by the Commissioner after the remand proceedings.