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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.
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