2016 (4) TMI 21 - AT - Service Tax

Scope of Banking & other Financial services - Whether the transactions involve financial leasing, equipment leasing and hire purchase where the demands are confirmed and others are operating lease, loan against hypothecation and hire purchase finance, where the demands were dropped - Agreements relating to lease agreements entered prior to and after 16.7.2001, hire purchase agreements before and after 16.7.2001, hire purchase finance agreements, loan-cum hypothecation agreements - Rendered various financial services and received financial income under the taxable category of banking and other financial services as defined under section 65(12) and also some receipts as Business Auxiliary Services falling under section 65(19) of the Finance Act,1994 - Held that - as per Supreme Court judgment in one case, that the nature of transaction culled out from the documents and surrounding circumstances are the decisive factors in arriving at a conclusion whether the ownership of the goods under hire purchase agreement has been retained or conveyed on completion of transaction. Therefore, all the agreements need to be scrutinized along with supported evidences/documents which could not be possible at this appellate stage as all the transaction documents are not enclosed with the agreement; besides these agreements were not examined/scrutinized by the original adjudicating authority even though equipped with enough manpower to undertake such a herculean task. 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. Leviability of Service tax - Whether value representing securitization transaction deducted from the total value as non-taxable service for the period 2002-03 & 2003-04 is correct or not - Appellant also entered into the transaction of securitization, whose value had been rightly deducted from the gross taxable value for the financial year 2002-03 & 2003-04 being in the nature of sale transaction and followed necessary guidelines issued by the RBI, applicable to banks/financial institutions and NBFCs in this regard - Held that - 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. Rejection of RBI statement figures while calculating the service tax liability for the period 2004 - 05, 2005 - 06 and 2006 - 07 - Held that - the ld. Commissioner has not recorded any observation as to why the said figures be discarded. Any order/finding without reasons is cryptic and it ll be difficult for the appellate authorities to examine the correctness or otherwise of such findings, hence such order cannot be sustained in law. Therefore, the computation for the financial years 2004-05, 2005-06 & 2006-07 are set aside and the adjudicating authority is directed to record a detailed finding supported by reasons in discarding the RBI statement figures and adopting the figures submitted before him. Leviability of Service tax - Collection commission under the category of Business Auxiliary Service (BAS) as defined under Sec.65(12) - Commission received in terms of collection of EMI from the borrowers on behalf of several Banks and providing financial service to the banks in disbursement of loan by the customer- banks which resulted in promoting or marketing of the services provided by the clients (banks), hence fall under clause(ii) i.e. promotion or marketing of services provided by the client of the said definition of BAS - Held that - the ld.commissioner has not confirmed demand of service tax on the collection commission considering the appellant as a commission agent and the amount received as agency commission but, he has confirmed the demand service tax on such receipts under Clause-(ii) of the Definition of BAS as defined under 65(19) of the Finance act, 1994. Also, 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 vs. CCE, Aurangabad 2014 (2) TMI 98 - CESTAT NEW DELHI (LB) , 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. In computing the demand under this category the ld. adjudicating authority has discarded the figures of the RBI statement without recording reasons. Therefore, the ld. Commissioner also should record reasons in computing the demand, in the event it is concluded by him that the said service is taxable. Recovery of ₹ 93.00 Lakhs, collected by the appellant representing the said amount as service tax, under section 11D of the Central Excise Act, 1944 - Appellant contended that only an amount of ₹ 7,54,689/- was collected by the Applicant representing service tax and the amount of ₹ 69,52,945/- was collected as contingency deposit but not supported by any evidence - Held that - 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. Liability of Service tax for the period 2002-03 & 2003-04 - Amounts received towards management fees, penal interest and termination charges - Held that - by following the decision of the Tribunal in the case of Bank of Baroda Bank of Baroda v. CCE, Jaipur 2014 (3) TMI 653 - CESTAT NEW DELHI and Small Indistires & Devlopment Bank of India Vs. CCE, Chandigarh 2011 (1) TMI 495 - CESTAT, NEW DELHI , 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. Demand on penal interest and termination of charges - Held that - since most of the issues raised by the assesse and the revenue are remanded for reconsideration, hence, it would be inappropriate to record any observation on the applicability of extended period and penal provisions at this stage when the facts are not clear. The adjudicating authority would be free to decide after analysis of facts/evidences on record and that would be produced in the remand proceeding to arrive at a conclusion on the aspect of limitation and imposition of penalty accordingly. - Appeal disposed of

Summary

Issues Involved:

1. Taxability of various financial services under "Banking and Other Financial Services".
2. Classification and taxability of securitization transactions.
3. Correctness of service tax computation for specific financial years.
4. Classification of "collection commission" under "Business Auxiliary Services".
5. Recovery of Rs. 93.00 Lakhs under Section 11D of the Central Excise Act, 1944.
6. Taxability of penal interest, termination charges, and management fees.
7. Applicability of extended period of limitation and penalties.

Issue-wise Detailed Analysis:

1. Taxability of Various Financial Services:
The Tribunal remanded the matter to the Commissioner to analyze the true nature of transactions between the appellant and its customers. This involves examining agreements and supporting documents to determine if the services fall under "Banking and Other Financial Services" as defined in Section 65(12) of the Finance Act, 1994. The Commissioner must scrutinize whether the transactions are financial leases, equipment leases, operating leases, hire purchase agreements, hire purchase finance agreements, or loans against hypothecation.

2. Classification and Taxability of Securitization Transactions:
The Tribunal directed the Commissioner to examine securitization agreements to ascertain if the transactions are sales or services. The appellant claimed these were sales of financial assets, while the Revenue argued they involved financial services. The Commissioner must verify if the appellant's activities were limited to the first stage of securitization (sale of assets) or included the second stage (re-packaging and selling securities).

3. Correctness of Service Tax Computation:
The Tribunal found that the Commissioner had reduced the taxable value for certain financial years without recording reasons. The Commissioner must provide detailed findings and reasons for computing the taxable value, whether based on RBI statements or other sources, for the years 2004-05, 2005-06, and 2006-07.

4. Classification of "Collection Commission" under "Business Auxiliary Services":
The Tribunal noted conflicting views on whether collection commission falls under "Business Auxiliary Services" (BAS). The Commissioner must scrutinize agreements with client banks to determine if the services promote or market the services provided by the banks, thus falling under BAS as defined in Section 65(19) of the Finance Act, 1994.

5. Recovery of Rs. 93.00 Lakhs under Section 11D of the Central Excise Act, 1944:
The appellant claimed that only Rs. 7,54,689/- was collected as service tax, while Rs. 69,52,945/- was collected as contingency deposits. The Commissioner must verify this claim and ascertain if the amount of Rs. 93.00 Lakhs was erroneously computed by considering an amount twice. The appellant must provide evidence to substantiate their claim.

6. Taxability of Penal Interest, Termination Charges, and Management Fees:
The Tribunal noted that penal interest and termination charges are not taxable under "Banking and Financial Services" based on previous Tribunal decisions. The Commissioner must drop the demand on these charges and scrutinize the transaction relating to management fees, recording reasons for its taxability or otherwise under "Banking and Other Financial Services".

7. Applicability of Extended Period of Limitation and Penalties:
The Tribunal deferred the decision on the applicability of the extended period of limitation and penalties until the facts are clear. The Commissioner must analyze the facts and evidence on record during the remand proceedings to determine the applicability of the extended period and penalties.

Conclusion:
The Tribunal remanded the matter to the Commissioner for a fresh adjudication on all the issues, directing that the proceedings be completed within four months. The appellant assured cooperation and submission of requisite evidence during the de novo proceedings.