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TMI Blog2019 (9) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... e irrelevant. They may be equivalent to difference of their interest earning on loan extended in normal course and under the special scheme or can be more or less than that is immaterial for treating it is as consideration for providing the service. Similar issue decided in the case of M/S HOUSING DEVELOPMENT CORPORATION LTD (HUDCO) VERSUS CST, AHMEDABAD [ 2011 (11) TMI 95 - CESTAT, AHMEDABAD ] where it was held that Interest is nothing but the time-compensation for somebody s money being retained by somebody else. The longer the period of retention, the higher will be the interest amount. In this background, the prepayment charges can never be considered to be in the nature of interest as prepayment only means payment before time. This should ideally result in refund of interest and not the demand for more interest because the borrowed money is being paid back before time. Thus we are not in position to agree with the argument of the appellants by which they contend that these subvention charges are nothing but interest on advances and hence exempt from payment of service tax.- demand of service tax in under the category of Business Auxiliary Services on the amounts received as su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice tax totalling to ₹ 36,26,02,574/- (Rupees Thirty Six Crore Twenty Six Lakhs Two Thousand Five Hundred Seventy Four Only) under Section 73(2) of Chapter V of the Finance Act, 1994 for being recovered from M/s HDFC Bank Limited Kamala Mills, Trade World, C Wing, 10th Floor, Senapati Bapat Marg, Lower Parel, Mumbai 400013 along with accrued interest thereon at the applicable rate under Section 75 thereof; ii. I impose the mandated penalty of ₹ 36,26,02,574/- (Rupees Thirty Six Crore Twenty Six Lakhs Two Thousand Five Hundred Seventy Four Only) under Section 78 of Chapter V of Finance Act, 1994 upon M/s HDFC Bank Limited Kamala Mills, Trade World, C Wing, 10th Floor, Senapati Bapat Marg, Lower Parel, Mumbai 400013; and iii. I impose a penalty of ₹ 5000/- (Rupees Five Thousand Only) under Section 77(2) of Chapter V of Finance Act, 1994 for each infraction committed by M/s HDFC Bank Limited Kamala Mills, Trade World, C Wing, 10th Floor, Senapati Bapat Marg, Lower Parel, Mumbai 400013 under Section 70 of Chapter V of Finance Act, 1994 by filing incorrect ST-3 returns for the period from April 2008 to March 2011; and impose a penalty of ₹ 10,000/- (Rupees Ten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the vehicle dealer in lieu of interest on loan receivable from the borrower in normal course. For them it is consideration towards lending of money and nothing but the interest income, and not subjected to tax. ii. In case of Cauvery Spinning and Weaving Mills Ltd [340 ITR %%)] it was held that to call an amount received as interest at least one of the condition should be satisfied that the amount has been received as due on account of any money either borrowed or debt incurred. In the present case the debt is incurred when bank has extended credit for payment purchase price of vehicle. Same has been inserted by way of section 65B(30) in Finance Act, 1994, interest means interest payable in any manner in respect of any money borrowed or debt incurred (including deposit, claim or similar right or obligation) but does not include any service fee or other charge in respect of the money borrowed or debt incurred or in respect of any credit facility which has not been utilized. iii. While the nature of income received is interest but since the interest on loan amount in this case is not received from the borrower but is received from the dealer/ manufacturer, it is called subventio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd [2009 (13) STR 56 (T-Bang)] xii. Subvention do not arise due to any marketing service by the appellant to any third person but has direct correlation to its own business activities. They being banking company neither have any expertise or are equipped with any facility to market the motor vehicles. They only promote their financial products and not the vehicles sold by the dealers/ manufacturers. Their role is limited to that of financier in the low cost financing schemes. Thus if it is argued that there is promotion at all they are promoting their own business. For the limited purposes of promotion of its financial products, undertaken jointly with the dealers/ manufacturers, they can by no stretch of imagination be said to be promoting the business of the dealers. They would rely upon the following decisions in their support: a. Phase 1 Entertainment Pvt Ltd [2008 (12) STR 174 (T-Bang)] b. Saturday Club Ltd [2006 (3) STR 305 (Cal)] c. Dalhousie Institute [2006 (3) STR 311 (Cal)] d. India International Centre [2007 (7) STR 235 (T-Del)] xiii. As per Oxford dictionary interest is money charges or paid for use of money . In view of the above definition subvention income earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tan Steel Ltd [1978 (2) ELT 159 (SC)] g. Port Officer [2010 (257) ELT 37 (Guj)] h. Transpek Industries Ltd [1999 (108) ELT 562] i. Paramjit Sandhu Engg [1999 (30) RLT 595] j. Avon Scales Co [1999 (31) RLT 373] k. Mechanico Enterprises [1998 (26) RLT 386]. 4.1 We have heard Shri Abhishek A Rastogi and Shri Pratyush Sana, Advocates for the Appellant and Shri M K Sarangi Additional Commissioner, Authorized Representative for the revenue. 4.2 Arguing for the Appellants learned Counsel submitted that- The issue in the present case has been adjudicated by the tribunal in case M/s IndusInd Bank Ltd (earlier M/s Ashok Leyland Finance Ltd) 2019 (2) TMI 26; True nature and character of payment cannot be determined merely based on nomenclature, intention of contracting parties and transaction under relevant legislations/ regulatory bodies will have to be considered; The applicable laws do not mandate that the interest on loans has to be paid necessarily by the borrower. RBI on contrary recognizes subvention on price for payment offered by automobile dealers and manufacturers as part of lending activity carried out by banks. {RBI Clarification dated 17th September 2013} None of literary source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y case prior to July 2011 is barred by limitation as extended period of limitation cannot be invoked in the facts and circumstances of this case. 4.3 Arguing for the revenue learned Authorized Representative submitted that- The appellant are in the business of financing vehicles. As per the business model followed, they have tied up with vehicle manufacturers/ dealers for financing, they issue joint advertisement and manufacturers/ dealer for financing at rate lower than normal bank rate promote their business. They had taken the CENVAT Credit with respect to service tax paid on advertising invoice. During audit it was found that received some amount of commission from car manufacturer/ dealers i.e. subvention income shown as income in the Book of Accounts. As per revenue said amount received is consideration for providing services under category of Business Auxiliary Service . In such schemes as per the adjudication order, appellants extend loan to the customers of the vehicle manufacturer/ dealer at Nil or low rate of interest. The manufacturers/ dealers share the part of advertisement cost, an also pay them commission. Since the appellant are promoting the business of the vehicl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of subvention income to the department in any manner prescribed in ST-3 returns they have suppressed the facts from department which came to light only by the way of audit. Hence extended period of limitation has been rightly be invoked for making the demand. On the issue of limitation they would rely on the decision in following cases- City Financial Consumer Finance India Ltd [2017-TIOL-2363-CESTAT-DEL] Reliant Advertising [2013 (31) STR 166 (T-Del)] Vodafone Digilink [2011 (24) STR 562 (T-Del)] Bharat Sanchar Nigam Ltd [2011-TIOL-552-CESTAT-MUM] Rennaissance Leasing Finance Pvt Ltd [207 STR 4 (T-Del)] Lakhan Singh [2016 (46) STR 297 (T-Del)] 5.1 We have considered the impugned order and the submissions made in appeal, during course of argument of appeals and in written submissions filed. 5.2 The issue for consideration is whether the amounts received by the Appellants from the vehicle manufacturer/ dealer and accounted by them in their book of accounts as subvention income should be subjected to service tax under the category of Business Auxiliary Services as defined by Section 65 (19) of Finance Act, 1994. Section 65 (19) of the Finance Act, 1994 is reproduced below: Bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (f) of Section 2 of the Central Excise Act, 1944; The taxable service in relation to Business Auxiliary Service is defined by Section 65(105)(zzb) as follows: Taxable Service means any service provided or to be provided to a client by any person in relation to business auxiliary service. 5.3 The case of revenue in the present case is that appellants have entered into agreement with various vehicle manufacturers/ dealer for providing the loan to the customers/ clients of vehicle manufacturers/ dealers at a rate lower than the rate at which they grant the loan for purchase of motor vehicles to their client in general. For the provision o such loans they get certain amounts termed as subvention income from the vehicle manufacturers/ dealers. To promote the sale of the vehicles against said loans at reduced rate of interest appellants and the vehicle manufacturers/ dealers make joint advertisements on cost sharing basis. By the said provision of the loans at reduced rate of interest and joint advertisements made it is contended that appellants are promoting the sale of motor vehicles by the vehicle manufacturer/ dealer, and hence are covered by the definition of Business Auxiliary Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. The availability of nil or very low interest to buy vehicle enable the dealers to enhance their business of vehicle selling. The facility of these special schemes serve as special purpose vehicle (SPV) or platform, whereon, the business of the manufacturer and the vehicle dealers get promoted. It is for this reason that this arrangement is always between the noticee and the manufacturer and vehicle dealers only. 17. since the schemes of the noticee and the arrangement entered into between the noticee with the manufacturer and the vehicle dealers, in the process, enables the enhancement of vehicle sales of manufacturer/ vehicle dealers the noticee renders service, which promotes or markets the vehicles and their availability at loans with nil or very low interest. The rendering of the business auxiliary service by the noticee gets rendered to these manufacturers and the vehicle dealers. 18. In view thereof, it is noticee, who also renders the business auxiliary service to the manufacturer and vehicle dealers within the meaning and comprehension of Section 65(19) and Section 65(105)(zzb) of Chapter V of the Finance Act, 1994. The subvention income which is received by the noticee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for the provision of such service. 5.5 Appellants have strenuously argued before us that the amounts received by them from the vehicle manufacturers/ dealers is nothing but the loss of interest, they would have suffered on account of providing the loans at the reduced rate of interest. They have even submitted the calculations showing that that the amounts received by them are nothing but equivalent to yearly loss of interest against the loan extended, projected on the date of sanction/ disbursement of loan. They have referred to the clarifications issued by the Reserve Bank of India that subvention amount should be taken into account for determination of the interest rate. Hence they argue that since the subvention income is nothing but interest against the advances the same should not be subjected to service tax. We are not in agreement with the submissions made by the appellants. Once we hold that the amounts received by the appellants as subvention charges are consideration for providing the business auxiliary services, the manner in which they are determined are irrelevant. They may be equivalent to difference of their interest earning on loan extended in normal course and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r prepayment of loan or resetting, processing the application is involved. Therefore, there is definitely an element of service in prepayment of loan or resetting of interest. As already discussed earlier, the definition covers any activity in relation to lending. 18.1 Reset charges/prepayment charges charged to the customers by the appellant is in the nature of additional interest only and therefore not liable to Service Tax. 18.2 The appellant has contended that the said charges are calculated taking into consideration the rate of interest and loan amount. Thus, they are in the nature of additional interest and not liable to Service tax. 18.3 It has already been discussed that the prepayment charges are the charges for allowing the facility of prepayment of loan. Similarly, reset charges are the charges levied by the appellant for restructuring the interest rate. The method of calculating the charges has no bearing on the nature of service provided. Just because the charges have been calculated based on the outstanding loan amount and the interest rate prevalent at that time will not change the head of income from service charges to interest. 18.4 Interest is nothing but the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustainable on merits. City Financial Consumer Finance India Ltd {2017-TIOL- 2363-CESTAT-Del] Brief facts of the case are that the appellant is a NonBanking Finance Company and is engaged, inter alia, in the business of providing various types of loans to its customers. The appellant is registered with the Service Tax Department under the category of Banking and Other Financial Services. The appellant avails cenvat credit of service tax paid on input services, used by it for providing such output service. The Service Tax Commissionerate, New Delhi conducted audit of the records maintained by the appellant for the period 16.08.2001 to 31.03.2005. During the course of audit, it was observed that in lieu of financing of home appliances, the appellant also received remittances as commission from the manufacturers and dealers, in the nature of interest under the nomenclature of subvention income . The service tax attributable to such service was deposited by the appellant in respect of the manufactures, other than M/s. L.G. Electronics Ltd. Further, it was also observed by the Audit, that the appellant did not maintain separate records of inputs / input services used for providing both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L Global Pvt. Ltd. v. Additional Commissioner of Income Tax [ITA No. 386/Mum/10]. Learned Chartered Accountant has sought to distinguish the factual position in these cases from those of the appellant. 8. We have perused the decisions cited by both sides. One of the essential requirements in taxing of services is the existence of service-provider and recipient of service with the latter making over the agreed upon consideration to the former. Appellant, admittedly, markets products of financial institutions for which they are entitled to a commission. There is common ground here on the taxability of commission as received. However, the appellant claims to have waived a portion of the commission otherwise receivable which the bank then uses to reduce the consideration that it receives for such financing from customers. It would appear that consideration not received by the appellant from the financial institutions for one service is adjusted to compensate for the reduced consideration received by the financial institution for another service rendered to another recipient. JMD Marketing [2016 (46) STR 504 (T-Mum)] 6 . During arguments, the respondents admitted that the banks are dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 67 of Finance Act, 1994 Service Tax shall be paid on the gross amount charged by the service provider. It is also noticed that as per the submission of the appellant, the TDS certificate was issued by the Bank in the name of the appellant for deduction of income-tax on the full amount paid to the appellant. This means that while filing income-tax return, he is taking the credit for entire TDS including the amount deducted on account of payments directly made to the customers. Therefore, this is an arrangement where the appellant decided to get the benefit of deduction of TDS for the whole amount for income-tax purpose but to pay Service Tax only on the amount net of subvention. Thus there is a inherent contradiction in the stand that is being taken by the appellant before the two tax authorities. The arrangement made for the purpose of reducing incidence of income-tax is not a subject matter of these proceedings. 5. We are of the view that the amount paid by the bank for the services rendered by the appellant and reflected as receipts in the books of accounts of the appellant, should be subjected to Service Tax and therefore, the orders passed by the lower authorities is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ST-3 returns and its accompaniments remained silent and, thus, untrue. In consequence, the curative mechanism of the proviso to Section 73(1) of Chapter V of Finance Act, 1994 has been rightly invoked to extend limitation from one year to five year to capture the escaped amounts of service tax. 23 The demands of the unpaid amounts of payable service tax have been determined together with accrued interest in invocation of the extended period of limitation, since, there had been suppression of relevant facts by the noticee despite being fully aware of the true scope and benefits of the special financial schemes promoted by them and manufacturer and vehicle dealers. These schemes promoted the business of vehicle sales, which benefitted the manufacturer and the vehicle dealers. In the process they had rendered the taxable business auxiliary services to the manufacturer and the vehicle dealers. Despite such self awareness, they failed to pay service tax to their account of central government by or before the dates on which it had fallen due. This failure, in facts and circumstances of this case, is deliberate. The mandated penal visitation under section 78 of Chapter V of the Finance Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commissioner under Section 77 for various infractions noticed in complying with provision of law. For imposing penalty under Section 77 Commissioner has recorded as follows: 24. The above acts of the notice further led to improper and incorrect filing of ST3 returns and its accompaniments as provided under Section 70 of Chapter V of Finance Act, 1994 in reading of Rule 7 of the Service Tax Rules, 194. There had been repeated infractions for the period April 2008 to June 2012. Each of these infractions would attract independent penalty under section 77 of Chapter V of Finance Act, 1994. Penalty under Section 77 are civil in nature and are imposed for infractions noticed since by not making proper declarations in ST-3 returns appellants have contravened the provisions of Section 70 of Finance Act, 1994 read with rule 7 of Service Tax Rules, 1994 penalties as imposed by the Commissioner under Section 77(2) too are justified. 5.9 By the impugned order, interest under Section 75 on the amount short paid has also been demanded. The interest as provided by the statue is for the delay in the payment of tax from the due date. Since the demand has been upheld, demand for interest too is u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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