2016 (9) TMI 1111 - AT - Service Tax

Service tax liability - banking and financial service - income earned towards leasing out of certain machines - agreement was for providing lease/ right by the respondent to the third party for use of plant and machinery for a period of five years - ownership of the assets and effective control is with the respondent - Held that - a lease is classified as financial lease if the lesser transfers the owner of the assets to the lessee by the end of lease term. We note that the ld. Commissioner (Appeals) had examined the various terms of agreement to arrive at a conclusion that the leasing of equipment in the instant case cannot be regarded as a finance lease as per the Accounting Standards. We are in agreement with the said findings. We further note that the tax liability on the respondent was sought to be sustained on the ground that they are a body corporate and hence covered by the definition. We note that the definition mentions banking company or financial institution and / non-banking finance company . The principal objective of all these shall be financial dealings. An industrial concern is not covered by the scope of the definition. Reliance placed by the ld. Commissioner (Appeals) on the Board Circular dated 09.07.2001 and dt. 04.07.2006 is appropriate to apply the scope of other body corporate for service tax purpose under banking and financial services . Therefore, we find no reason to interfere with the impugned order. - Decided against the Revenue

Summary

Issues:
Liability of respondent for service tax on income earned from leasing out machines under the category of "banking and financial services."

Analysis:
The judgment pertains to an appeal by the Revenue against the order of the Commissioner (Appeals) regarding the liability of the respondent for service tax on income derived from leasing out certain machines. The Revenue contended that the consideration received by the respondent from leasing the machines should be taxed under the category of "banking and financial services." The key issue revolved around whether the leasing activity fell within the ambit of financial leasing services as defined under Section 65 of the Finance Act, 1994.

The Tribunal examined the definition of "banking and financial services" under Section 65 of the Finance Act, 1994, which includes financial leasing services provided by a body corporate. The Tribunal analyzed the lease agreement between the respondent and the third party, focusing on the transfer of ownership and effective control of the assets. The Tribunal agreed with the Commissioner (Appeals) that the leasing of equipment in this case did not meet the criteria of a finance lease as per Accounting Standards - 19 issued by ICAI. The Tribunal found no grounds to challenge this conclusion.

Furthermore, the Tribunal addressed the argument that the respondent, being a body corporate, should be liable for service tax under the definition of "banking and financial services." The Tribunal emphasized that the definition includes banking companies, financial institutions, and non-banking financial companies, with the primary objective of financial dealings. It cited a previous case to establish that an industrial concern engaged in manufacturing activities does not fall under the scope of a banking company or financial institution for service tax purposes. The Tribunal supported the application of the Board Circular to determine the scope of other body corporates for service tax under banking and financial services.

After careful consideration of the impugned order and the grounds of appeal, the Tribunal found no justification to overturn the decision of the Commissioner (Appeals). Consequently, the appeal by the Revenue was dismissed, upholding the order in favor of the respondent. The judgment was pronounced on 30.08.2016 by the Tribunal comprising Mr. Justice (Dr.) Satish Chandra, President, and Mr. B. Ravichandran, Member (Technical).