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2018 (6) TMI 1007 - AT - Service TaxTaxability - Banking and other financial services - consideration received from lessees and hire-purchasers - scope of Operating Lease - benefit of N/N. 4/2006-ST dated 1st March 2006 - Held that:- It is now well settled in law that hire purchase is but a loan: that the hirer obtains goods from a seller and the banking and financial institution finances the purchase of goods with the title firmly resting with the hirer and the institution vested with right to acquire possession of the goods, through judicial intervention, in the event of non-payment of contracted amount. This differs substantially from operating lease. Therefore, the taxability of the service is not in question. 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. In computing the value of taxable service mandated 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 appellant. Appeal disposed off.
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