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2023 (3) TMI 1072 - AT - Service TaxLevy of service tax - activity undertaken by the assessee of hire purchase and financial lease agreement entered prior to 16.07.2001 and amount received thereafter - prior to 01.03.2006 when there was no mechanism for bifurcation of service income as provided in Notification No.4/2006 demand of service tax is sustainable or not? - levy of penalty on assessee. Whether for the activity undertaken by the assessee of hire purchase and financial lease agreement entered prior to 16.07.2001 and amount received thereafter are liable to service tax or not? - HELD THAT - The service tax has been levied on Banking and Other Financial Services with effect from 16.07.2001. Prior to that there was no leviable on Banking and Financial Institution Services. Therefore the agreement which has been entered by the assessee with their clients prior to 16.07.2001 when no service tax was leviable the liability of service tax does not arise against the assessee. The agreement entered by the assesse prior to 16.07.2001 is not liable to be taxed although the assesse has received the payments later on. Therefore the issue is answered in favour of the assessee. Whether prior to 01.03.2006 when there was no mechanism for bifurcation of service income as provided in Notification No.4/2006 demand of service tax is sustainable or not? - HELD THAT - As there was no mechanism for bifurcation of taxable and non-taxable service rendered by the assessee in that circumstances reliance has been made in the case of COMMISSIONER OF CGST CENTRAL EXCISE VERSUS SHRIRAM TRANSPORT FINANCE COMPANY LTD. 2021 (2) TMI 836 - BOMBAY HIGH COURT wherein the Hon ble High Court of Bombay has observed that Explanation 1 to section 67 of the Finance Act prior to 18.04.2006 contained a specific exclusion vide sub clause (viii) excluding interest on loans. Though section 67 was substituted by Finance Act 2006 w.e.f. 18.04.2006 the corresponding Service Tax Determination of Value Rules 2006 vide rule 6(2)(iv) again excluded interest on loan from the purview of valuation of taxable services. However the Board vide circular No.80/10/2004-ST dated 17.09.2004 clarified that interest on loan would stand excluded. Respondent has been discharging service tax regularly on processing charges and also filing returns regularly. Respondent gives loan to its customers / borrowers for the purpose of hire purchase agreement for purchasing the vehicles and this lending is in the nature of a loan. Since it is in the nature of loan consequently interest on loans stands excluded from the value of taxable services. Board circular dated 09.07.2001 referred to by the appellant in fact supports the case of the respondent. Thus for the period prior to 01.03.2006 no service tax is payable by the assessee although the agreements may have been entered post 16.07.2001 - for the agreement entered after 16.07.2001 the assessee is liable to pay service tax w.e.f. 01.03.2006 in terms of Notification No.4/2006-ST dated 01.03.2006. Whether in the facts and circumstances of the case penalty is imposable on the assessee or not? - HELD THAT - Nno penalty is imposable on the assessee. Appeal disposed off.
Issues Involved:
1. Liability of service tax on hire purchase and financial lease agreements entered prior to 16.07.2001. 2. Sustainability of service tax demand prior to 01.03.2006 without a mechanism for bifurcation of service income. 3. Imposability of penalty on the assessee. Summary: Issue No. (1): The Tribunal found that service tax on Banking and Other Financial Services was levied from 16.07.2001. Agreements entered prior to this date are not liable for service tax, even if payments were received later. Thus, the assessee is not liable for service tax on agreements entered before 16.07.2001. Issue No. (2): The Tribunal referred to the Bombay High Court's decision in the case of Sriram Transport, which clarified that no service tax can be levied on financing activities before 01.03.2006 due to the absence of a mechanism to bifurcate service income from interest income. The Tribunal held that prior to 01.03.2006, the demand for service tax is unsustainable. However, for agreements entered after 16.07.2001, service tax is payable from 01.03.2006 as per Notification No.4/2006-ST. Issue No. (3): Given the circumstances, the Tribunal concluded that no penalty is imposable on the assessee. Conclusion: The appeals filed by both sides and the cross-objection were disposed of accordingly. The judgment was pronounced in open court on 23.03.2023.
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