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TMI Blog2018 (6) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... d by section 67 of Finance Act 1994, the law provides exclusion either by Explanation or by Rules; it is that exclusion that has been claimed by appellant as their statutory right? - Held that:- The consideration for the taxable service rendered by appellant is received as equated monthly instalment which is then assigned by appellant as principal and interest - only processing/management fees can be subjected to tax. Income from financial lease or hire-purchase is taxable under Finance Act, 1994 as lending activity, that income attributable to interest on lending is not to be included in assessable value, that it was only from 1st March 2006 that ten percent of the income described as interest was attributed to inputs other than borrowing and, hence, includible in assessable value of the financial institutions - The recovery of tax on interest for the period prior to 1st March 2006 is without authority of law as there is a presumption of attributing the entire amount to interest in the absence of any mechanism to isolate the processing or management cost even if that were collected in the equated monthly instalment or any determination of such in the notice issued to the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, 1994 any service provided or to be provided to any person by a banking company or a financial institution including a non-banking financial company, or any other body corporate or commercial concern in relation to banking and other financial services 4. According to Learned Counsel, the principal activity which was sought to be subject to levy was financing arrangement with interest being the recompense and which the adjudicating authority has adopted as the measure of value of the taxable service. The elaborate submissions on the evolution of the industry, the Forty Sixth Amendment to the Constitution for empowering states to tax three categories of deemed sales which had, till then, been outside the tax net and the decision of the Hon ble Supreme Court in re Association of Leasing and Financial Service Companies of Learned Counsel does not advance the claim of non-taxability of the appellant but appears to be intended to draw attention to the purported erroneous inferences of the adjudicating authority. At this point, we are only concerned with the confirmation of tax and the sanctity of the authorities relied upon in the impugned order. 5. The impugned order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility would have been erased. We do not consider this to be a matter that should determine the outcome of this appeal as such speculative trajectories, though permissible from the bar, but not being in conformity with the scheme of judicial hierarchy or jurisdictional limitation, cannot be indulged in by the bench. 8. It is the further contention of Learned Counsel that the consideration for loans, that the impugned transactions are now legally sanctified to be, is interest and these have been placed beyond the pale of inclusion in assessable value legislated in section 67 of Finance Act, 1994 by incorporation of (viii) interest on loans. 67. Valuation of taxable services for charging service tax. For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such service rendered by him xxxxx Explanation 1 For the removal of doubts, it is hereby declared that the value of taxable service, as the case may be, includes xxxx but does not include xxxx on 10th September 2004 and the specific exclusion in rule 6 (2) of Service Tax (Determination of Value) Rules, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Daman [2013-TIOL-2393-CESTAT-AHM] cited by Learned Counsel, it has been held that interest income is excluded from the purview of taxability. In particular, we note 5. We are conscious that Finance Act, 1994 is not the law of Income Tax to tax interest income but the consideration relating to services provided shall only be subject matter of taxation by Finance Act, 1994. The object of section 105 of the Act is appreciable from the beginning phraseology employed in section 65(105), which reads as taxable services means the service provided or to be provided. This presupposes that the service to be taxable should have been provided or to be provided, notified to be taxable. Consideration received towards such provision of service becomes taxable under the provisions of the Act. The law also provides that the gross amount charged by an assessee may constitute several receipts. But, only that part of the consideration, which relates to provision of taxable services is brought by scope of taxation. Accordingly such fundamental concept of law is exhibited by section 67 of the Act stating that prior to 18.2.2007, interest on loan is specifically excluded by an explanation appearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal that have held otherwise did not have the benefit of wisdom of the judgement of the Hon ble Supreme Court in re Association of Leasing and Financial Service Company and are, therefore, per incuriam. 14. There is no doubt that interest earned on loans is not chargeable to service tax; this is the law in section 67 of Finance Act, 1994 and Service Tax (Determination of Value) Rules, 2006. Consequently, any income that is in the nature of interest earned by a bank or financial institution cannot be collected. Here we must be clear about the characteristic that confers that bar on collection. Every consideration for the taxable service is leviable in accordance with the charging section unless excluded by the charging section which is section 66 of Finance Act, 1994 read with section 65 (105) (zm) and section 65 (12) of Finance Act, 1994. The other mechanism for grant of concession lies in section 93 of Finance Act, 1994 which may reduce a portion of the rate or forgo the entire. None of these have been resorted to for banking and other financial institution service. However, in computing the value of taxable service mandated by section 67 of Finance Act 1994, the law provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hire-purchase through subsidiaries and by the categorization of nonbanking financial companies, in accordance with instructions of Reserve Bank of India, as leasing or hirepurchase entities on the basis of prescribed parameters. There is, therefore, a distinction between the interest earned by a bank and the disaggregation of equated monthly instalments earned by a financial institution engaged in financial leasing and hire-purchase. 19. It is a presumption on the part of the appellant that the processing fee collected upfront alone is subject to levy. Those are documentation fees that are recovered once during the tenor of the agreement. The appellant cannot sustain its service operations on the recovery of principal and the upfront charges cannot be anything other than the costs of entering into the agreement. The appellant avails of inputs and input services for provision of output services and these must be paid for. A banking institution has the wherewithal to deploy funds from deposits placed with it and with the latitude afforded by the reserve ratios prescribed by the Reserve Bank of India. On the other hand, a non-banking company deploys resources whose costs do not. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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