TMI Blog2011 (4) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act - not liable to service tax. - AAR/ ST-1/03/2011 - - - Dated:- 8-4-2011 - Mr Justice P.K. Balasubramanyan, Mr. J. K. Batra, Mr. J. Khosla, JJ. Present for the applicant : Sh. H.K.Bali, General Manager, Sh. Anil Seth, Advocate Present for the Commissioner : Sh. B.K. Singh, JCDR, Sh. Sumit Kumar, SDR R U L I N G (By Justice P.K. Balasubramanyan) This is an application by a Public Sector Undertaking under the Ministry of Railways under section 96 C of Chapter V of the Finance Act, 1994. According to the applicant, it provides consultancy services in various facets of transportation like Railways, Highways, Airports, Urban transport, Ropeways etc. in India and abroad. It also provides services of third party inspection, project management and construction supervision. Since it is in the business of providing consultancy services it is being approached for the leasing of locomotives, coaches and wagons in India. It is also exporting and leasing locomotives and rolling stock abroad. 2. It has approached this Authority for Advance Ruling on the question sought to be raised by it since it proposes to enter into a new business and wants to seek a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act to meet the claim and the arguments surrounded the interpretation of that provision. 5. Considering that the Ruling turns on the interpretation of section 65(12) of the Act, we think it proper to set down the said provision thereunder: 65. Definitions In this Chapter, unless the context otherwise requires,- (1) to (11) xx xx xx xx xx xx (12) banking and other financial services means (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern namely:- (i) financial leasing services including equipment leasing and hire-purchase; Explanation: For the purposes of this item, financial leasing means a lease transaction where (i) contract for lease is entered into between two parties for leasing of a specific asset; (ii) such contract is for use an occupation of the asset by the lessee; (iii) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges; and (iv) the lessee is entitled to own, or has the option to own, the asset at the end of the lease period after mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. We find some force in this submission, but at the same time as explained before us on behalf of the applicant, what the applicant proposes to undertake is the grant of a lease of its equipments for a short period on rent without providing any other service and leaving the equipment in the possession and control of the lessee and the ruling is sought on such a transaction. It was also pointed out that the applicant has granted wet leases in contradistinction to the transaction involved herein and that it is not questioning its liability to pay service-tax for wet leases since that transaction would include the providing of men and material and repairs for the locomotives etc. leased out. In fact, a copy of a wet lease entered into by the applicant was produced before us to show the difference between that activity and the activity of mere leasing of locomotives, coaches and wagons as now proposed to be undertaken. We have earlier admitted the application with a view to give a ruling on this question and since at the argument it was made clear to us that the applicant would be purchasing or hiring these equipments and would merely be letting them out to the proposed lessee, for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or commercial concern were to undertake that activity, that activity will be exigible to service-tax. On behalf of the applicant it was submitted that equipment leasing and hire-purchase being included in financial leasing services have to be transactions where the equipment is intended to be ultimately owned by the lessee and where the payment or tendering of instalments by the lessee is to cover the price of the equipment and ultimately, the lessee gets title to the equipment itself or gets the right to purchase the equipment. The transaction that the applicant seeks to undertake, does not contemplate transfer of the subject matter of the lease to the lessee at any point of time, the term of the lease fixed has no correlation to the life or period of utility of the equipment and the rent payable would not make up any part of the cost of the acquisition of the equipment by the applicant and the equipment would always remain as that of the applicant. 8. The definition speaks of financial leasing service including equipment lease or hire purchase. Financial leasing is indicated as meaning a lease transaction where four elements have to cumulatively exist including the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed KAPUR, J. that general words and phrases, however, wide and comprehensive they may be, in their literal sense must usually be construed as being limited to the actual object of the Act. It may in the same context be said that it is a sound rule of construction to confine the general provisions of a statute to the statute itself. 9. In this context, understanding the scope of definition contained in Section 65(12) of Chapter V of Finance Act, 1994 it appears to be logical to understand the expression equipment leasing as having an element of financing like a hire purchase or a financial leasing service and it cannot be understood as taking in a mere leasing of an equipment for a short duration unrelated to the life and cost of the equipment and without the intention of giving the lessee the option to purchase the equipment on the expiry of the term or on fulfilling its obligation to pay the hire charges (which takes in the value of the equipment itself) in instalments in terms of the transaction. 10. Section 65(12) of the Act defines banking and other financial services. The intention manifested is to deal with financial services. Whether it is financial service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omers by the NBFCs under Section 66 of the 1994 Act (as amended) as they come under banking and other financial services under Section 65(12) of the said Act. The finance lease and the hire purchase finance thus squarely come under the expression financial leasing services in Section 65(12) of the Finance Act, 1994 (as amended). 12. What we understand from the above, is that unless financing is involved, the leasing of equipment would not come within the purview of Section 65(12) of the Act. 13. Here, we have a case where the equipment is purchased or taken on lease by the applicant. It is proposed to be granted on a lease for a short term (in fact, on behalf of the petitioner it is submitted that it was proposed to grant a lease for two years only). The lease amount or rent is to bear only a small proportion to the cost of the equipment. The term of the lease has no correlation with the life of the equipment which on the expiry of the short term, would revert to the control of the applicant. The subject matter of the lease was to be in the possession and effective control of the lessee during the term of the lease. There was no intention to convey the title to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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