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M/s Magma Fincorp Ltd Versus Commissioner of Service Tax, Kolkata, Commissioner of Service Tax Versus M/s. Magma Sharchi Finance Ltd

2015 (6) TMI 442 - CESTAT KOLKATA

Banking and Financial services - Service tax liability on Leasing of equipments, hire purchase agreements , Business Auxiliary services - Securitization transactions - Collection Commission - Failure to deposit recovered amount as service tax under section 11D of the Central Excise Act, 1944 - Levy of service tax on penal interest , prepayment/termination charges & management fees - Held that:- From the ratio laid down by the Hon'ble Supreme Court in Sundaram Finance Ltd.'s case [1965 (11) TMI 1 .....

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that in almost all the cited agreements/contacts, the Appellant had been approached by the respective customers for procuring/purchasing a vehicle, (except agreement dated 22.03.2000 between the Appellant and M/s.Shiva Cement Ltd. which relate to lease of equipment). We find that the customers were required to pay the amount/value shown in the schedule-II of the agreements in monthly installments for the period specified in schedule-III agreed between the appellant and the customers. We find th .....

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lant to the dealer and the initial payment is described as down payment, margin money, etc., but it is not clear in all cases as who had paid this initial payment. In the event such margin money is paid by the customer, and from other attendant circumstances it could not be said that the arrangement is as an operating lease and the asset is owned by the Appellant.

In the result, we are of the firm opinion that ascertaining of the facts are vital, to application of the principle of law .....

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ubmissions advanced by both sides we find that the securitization as narrated by the ld. Advocate, taking cue from the RBI guidelines, is claimed by the Appellant to have been limited to the first stage, however, whether it involved the second stage of rendering service has not been scrutinized/examined by the ld. Commissioner before deducting the said securitization amount from the gross taxable value for two financial years considering the same as non-taxable under the Finance Act, 1944. There .....

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nalysis of the agreement/transaction documents following the principle laid down in Pagaria Auto centre's case [2014 (2) TMI 98 - CESTAT NEW DELHI (LB)], the Tribunal in a subsequent case viz. Atamaram Auto Enterprises [2015 (6) TMI 440 - CESTAT NEW DELHI] held that such services are taxable being in the nature of promoting or marketing services provided by the Banks under the heading of Business Auxiliary services.In the present case we find that the Ld. Commissioner has without scrutiny of the .....

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service tax - It has not been substantiated by the appellant as to how the said contingency deposits had been collected from the customers, that is, whether it was collected in lump sum or was shown as deposits in the respective agreements/contracts or Bills raised by the appellants or any other manner during the relevant period. Advancing the bare claim that collection was towards contingency deposit could not lead to any conclusion that these amounts have been collected as deposits, not as rep .....

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ce to produce before the adjudicating evidence in favour of the said claim. So this issue has also needs be remanded for consideration afresh. - Decided partly in favour of assessee.

Penal interest , prepayment/termination charges & Management fees - Tribunal in the case of Bank of Baroda [2014 (3) TMI 653 - CESTAT NEW DELHI ] & Small Industries& Development Bank of India [2011 (1) TMI 495 - CESTAT, NEW DELHI] held that penal interest, prepayment charges are not be leviable to service .....

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Member (T),JJ. For the Appellant : Shri Ravi Raghavan & Shri Harsh Shukla, Advs. For the Respondent : Shri D K Acharya, Spl. Counsel ORDER Per: D M Misra: The aforesaid Appeals are filed by the assesse-appellant M/s. Magma Finance Corporation Ltd. and also by the Revenue challenging the same Order-in-Original No.61/Commr./ST/Kol/ 2008-09 dated 31.03.2009, passed by the Commissioner of Service Tax, Kolkata. 2. Briefly stated the facts of the case are that acting on a specific information that .....

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.2007 and investigated the case. On completion of investigation, a show cause cum demand notice was issued to the Appellant on 16.10.2007 alleging non-payment of service tax of ₹ 4237.49 Lakhs, education cess of ₹ 51.45 Lakhs for the period from 01.04.2002 to 31.03.2007. Also, it was alleged that they have collected an amount of ₹ 93.00 Lakhs as service tax from their customers which is recoverable, under section 11D of Central Excise Act, 1944 as applicable to the Finance Act, .....

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e-appellant are in Appeal. 3. The Ld. Commissioner has dropped Service Tax demand of ₹ 37,74,26,080/- and education cess.of ₹ 50,18,780/-. Aggrieved by the same, the Revenue is also in Appeal. 4.1 At the outset Shri Ravi Raghavan, Ld.Advocate for the assesse-appellant had submitted that the assesse-appellant is a Non-Banking Financial Company(NBFC) engaged in the business of financing of assets including vehicles by way of operating lease, loan and financial agreements. The transacti .....

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guidelines issued by RBI from time to time. The profit earned out of such sale is accounted by the Appellant in their books of accounts as gain on securitization. 4.3 Referring to the definition of 'banking and other financial services' prescribed at Section 65(12) of the Finance Act, 1994, the Ld. Advocate has submitted that the financial lease agreements entered into by the Appellant involving a total demand of ₹ 48.95 Lakhs cannot come under the scope of 'banking and other f .....

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se' is a 'financial lease' requires to be decided by the definition provided in the Finance Act, 1994. He has submitted that financial leasing has been defined to mean a transaction where the lease payment for the leasing contract (in respect of a specific asset provides for the lease and occupation of the assets by the lessee) is calculated to cover the full cost of asset together with interest charges and the lessee is entitled to own or has the option to own the asset, at the and .....

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the clients have the option to purchase the asset on expiry of the lease agreement. Also, the agreement clearly states that the clients cannot capitalize the vehicles/assets leased in their balance sheets. From this it is clear that the assets/vehicles provided on lease basis by the appellant are owned by it and the customers/clients do not have the option to purchase the vehicles/asset on expiry of the contract. The customers can only renew the contract for a specified period and can take the .....

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shown towards hire purchase agreements in effect pertains to agreements which are in the nature of 'hire purchase finance'. In support he has referred to the relevant paragraph of the agreement. Further referring to the definition of 'hire purchase' mentioned at section 2(c) of the Hire Purchase Act, 1972 the ld. Advocate has submitted that hire purchase is a contract where the hirer of the goods has to purchase the goods on payment of periodical installments. It is his submissi .....

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in ail these cases the vehicles were owned by the customers, the invoices were in the name of customers, the RTO registration certificate is also issued in the name of customers and name of appellant is only shown as for hypothecation purpose. At the end of the term period, the appellant furnishes Form 34 and Form 35 as prescribed under the Motor Vehicles Act so as to enable the customers to remove the hypothecation charge in the registration certificate. It is his submission that in view of the .....

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the appellant and take away the basic character of the agreements which is mere financing of the vehicles which were purchased by the customers. Such clauses are put in the agreement to ensure that the appellant retain the right to recover the vehicle in case of default in payment by the customers. In support of their submission that financer is not the owner of the vehicle the ld. Advocate placed reliance on the judgement of Hon'ble Rajasthan and Allahabad High Court in the cases of Padma .....

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y the Supreme court reported at 2008 (10) STR 433(SC). It is his submission that the ratio of these decisions are squarely applicable to the facts of the cases. 4.6 The Ld. Advocate has submitted that no service tax is payable on contracts entered prior to 16.07.2001 involving demand of ₹ 108.25 Lakhs. He has submitted that assuming that the Appellant had been undertaking the activity of hire purchase and financial leasing, even then service tax is not payable in respect of hire purchase c .....

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llant on operating lease, hire purchase finance, gains on securitization and loan against hypothecation, however, while calculating the service tax liability under banking and financial services, the Ld. Commissioner has only excluded the amounts towards hire purchase finance, gains on securitization and loan against hypothecation. In other words, the Ld. Commissioner though held that financial lease provided by appellant is in the nature of operating lease, however, the amount charged as manage .....

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ce tax. Hence, the amount charged as financial lease is not liable to service tax. Further, the Ld. Advocate has submitted that the demand confirmed by the Ld. Commissioner amounting to ₹ 93.00 Lakhs under section 11D of Central Excise Act, 1944 is incorrect inasmuch as only ₹ 7,54,689/- is the amount which had been collected by the appellant from their clients as representing service tax under banking and financial services. The balance amount of service tax has been collected by th .....

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rvice tax cases, only those amounts which are collected as representing service tax are to be deposited. Therefore, the amounts which were collected as contingent deposit are not covered under the provisions of section 11D of Central Excise Act, 1944, in support of which the Ld.Advocate referred to the judgement in the case of CCE vs. Mahindra & Mahindra Ltd. - 2001 (132) ELT 632. 4.8 It is his submission that if at all any amount that could be recoverable under section 11D of CEA,1944 then .....

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d in the impugned order of the Ld. Commissioner. It is his submission that the show cause notice has only demanded service tax on the total financial income shown in the balance sheet of appellant and during the course of adjudication proceeding, the appellant had provided break up of the financial income duly certified by their statutory auditors. On the basis of the said break up, the Ld. Commissioner dropped the demand considering gain on securitizatibn is in relation to sale of asset. In sup .....

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y Inustries Ltd. 2009(241)ELT 481(SC) • CCE vs. Gas Authority of India Ltd.2008(232) ELT 7 (SC) 4.10 The Ld. Advocate has further submitted that hire purchase finance agreement and hypothecation (Rs.598.46 Lakhs) are not covered under the scope of banking and financial services. It is his submission that the customers entered into contract only for the purpose of receiving finance from the appellant and the customers identifies the supplier and pass certain portion of the purchase amount di .....

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y default in payment of installment to the appellant, the appellant could only seize the vehicle for the purpose of recovery of the loan amount, therefore, the transaction is in the nature of financing only. He further submits that it is a settled legal position that the definition of banking and financial services would cover only hire purchase and not the transactions which are in the nature of hire purchase finance. Referring to the definition of hire purchase agreement prescribed at section .....

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lease, the vehicles are owned by the appellant and given on lease to the customers. He has submitted that the transaction is in the nature of deemed sale as provided under Article 366(29A) of Constitution of India. The 46th amendment to the Constitution of India empowers the states to levy sales tax/VAT on transaction in the nature of right to use goods which were earlier not excisable to sales tax as such transaction are not covered by the definition of sale as provided in Sale of Goods Act, 1 .....

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itted that the appellant enter into loan agreement with customers for financing the purchase of vehicles and other assets. The loans are secured by the asset purchased by the customers. The outstanding amount (principal of loan) given by the appellant is shown as assets in the balance sheet of the appellant and such performing assets (loans) are pulled together into a portfolio and the portfolio is sold to banks/financial institutions. This is a transaction of securitization. He has submitted th .....

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e securities issued by SPV. 4.13 It is his submission that securitization thus follows a two stage process. In the first stage there is sale of single asset or polling and sale of poll assets to a bankruptcy remote special purpose vehicle in return for an immediate cash payment and in the second stage repackaging and selling the interest representing schemes on incoming cash flows from the assets or poll of assets from the third party customers tradable debt securities. The first stage of transa .....

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f financial assets and selling the financial assets to SPV. The appellant does not undertake the second stage of the transaction i.e. activity of re-packaging of financial assets into salable securities which is done by the SPV and purchasing banks/financial institution as contended by the special counsel for the department. 4.14 He has further submitted that after sale of the financial assets there is a service element which could either be done by the buyer himself or the buyer may appoint eit .....

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of the installments due from the customers etc. after sale of such securities. The appellant had neither charged nor collected any service charges for the same. The appellant submits that in respect of the securitization agreement entered into for the subsequent periods, it has entered into with separate service agreement for a separate consideration on which service tax has been discharged. In the present case the securitization transaction has resulted into against profit on the securitized po .....

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folio and the projects consideration is recognized as gain on securitization and is not a service hence reliance placed by the special counsel for department on the note regarding securitization that there is an element of servicing by ignoring the sale transaction in the first stage, is not correct. He further submits that the department has not categorically challenged the findings of the ld, Commissioner on securitization by holding it to be a sale transaction. The appellant has been paying s .....

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Advocate submitted that the appellant had provided figures taking it from the audited balance sheet and other financial documents which were duly verified by the chartered accountant and these documents were also verified by the authorities before passing the order by the ld. Commissioner. Hence, it is incorrect to say that these figures were not verified by the department. Further he submits that in the event the department does not accept these figures as correct, the burden lies on the depar .....

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ived by it as "collection commission" which is paid by the banks to appellant for recovery of EMIs from various borrowers of such banks. The adjudicating authority while confirming the demand on this count has held that the appellant is acting as collection agents for the banks and is promoting and marketing the services of such banks. He has submitted that the ld. Commissioner has failed to consider the actual activities undertaken by the appellant. The allegations in the show cause n .....

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& Madras High Court in the cases of - • Heveacrumb Rubber (P) Ltd, vs. Superintendent of Central Excise - 1983 (14) ELT 1685 (Kan) • Vairavan Thandal vs. Appellate Collector of Customs, Madras - 2000 (125) ELT 94 (Mad.) • Audo Viso Corporation vs. Collector of Customs - 1991 (53) ELT 3 4.18 Further, without prejudice to their earlier submission it was submitted that if an agent promote services of various banks even then no service tax is payable by the appellant up to 15.06. .....

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2005 the scope of the definition of commission agent has been enlarged, so as to include provision or receipt of services for a consideration, Therefore, if at all the appellant were liable to pay service tax as commission agent, then it would be only w.e.f. 16.06.2005 due to the extended meaning of commission agent in the Finance Act, 2005. 4.19 Further, the Ld. Adv. has submitted that the services that were provided by the appellant would be liable to service tax only from 01.05.2005 under the .....

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omers. The appellant is also responsible for the recovery of EMIs from the borrowers. Thus, the appellant is undertaking a host of activities such as evaluation, verification of the customers, processing of transaction, providing operational assistance to the banks, collecting EMIs etc., hence, such services are squarely covered under the category of "Business support Service" which has been brought into force from 01.05.2006. In support he has referred to the judgement of the Tribunal .....

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the appellant on account of difference in the Fixed Deposit rate and applicable discount rate. The department has failed to establish as to how the aforesaid amount received by the appellant could be taxable under the category of BAS. 4.21. Further, he has submitted that the ld. adjudicating authority has confirmed the demand on management fees, penal interest and termination charges. The ld. Advocate submits that penal interest is in the nature of penalty and involves" no provision of serv .....

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elf for the subsequent period i.e. 2005-06 to 2009-10 dropped the demand on this count vide order-in-original No.04 & 05/Commissioner/ST/KOL/2012-13 dated 24.04.2012 on delayed payment charges, re-payment charges and cheque bouncing charges which are similar to management fees, termination charges. 4.23 The ld. Advocate has further submitted that the ld. adjudicating authority has wrongly invoked the extended period of limitation and imposed penalty under section 78 of the Finance Act, He su .....

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Kirloskar Oil Engines Ltd. v, CCE 2004 (178) ELT 998 (Tri.) • Paro Food Products v. CCE, Hyd. 2005 (184) ELT 50 (Tri.-Bang) • UT Ltd. v. CCE 2001 (130) ELT 791(T) 4.24 Further he has submitted that the constitutional validity of the levy on financial leasing including equipment leasing and hire purchase had been challenged by the association in the Hon'ble High Court of Madras even though the appellant sought registration under banking and financial service in the year 2001, howeve .....

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ss character and function of the appellant are referred to in the proceedings incorporated in the memorandum of association. He has submitted even in the AGM held on 23.07.2008 as per clause 6, it is mentioned as business of equipment leasing, hiring, hire purchase and asset based finance of all kinds. Hire purchase finance or operating lease other than financial leasing are not shown therein. He has further submitted that as per the Hon'ble Supreme Court's judgement in Sundaram Finance& .....

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chase is taxable under banking and financial service defined under section 65 (12((iv) of the Finance Act, 1994. He has submitted that in all the agreements under different periods, in their compendium, the appellant is always the owner of the equipment, vehicles leased out: the nomenclature is sometimes changed, for example, sometimes the client of the appellant hiring and taking on lease from the appellant, is shown as trustee of the hired article; the appellant is always the owner and not a s .....

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be satisfied to come under the scope of banking and financial service, the fourth conditions is not satisfied i.e. the lessee is entitled to own and has that option to own the asset at the end of lease period after making lease payment, submitted that these argument is flawed because entitlement or option by their very nature is optional and not compulsory. In any case, this clause was inserted by an amendment to the Finance Act from 01.06.2007 i.e. after the period of dispute hence not applicab .....

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(iii) Promotor-C - ₹ 1.50 Crores. The terms of repayment comprising the principal + interest in ten years are: (i) ₹ 50.00 Lakhs + ₹ 5.00 Lakhs (per annum), (ii) ₹ 1.00 Crore + ₹ 10.00 Lakhs (per annum) and (iii) ₹ 1.50 Crores + ₹ 15.00 Lakhs (per annum), respectively. M's loan is asset backed or mortgaged backed and hence an asset, but not a liquid asset M decides to convert ₹ 30.00 Crore loan into 100 securities of ₹ 30.00 Lakhs each an .....

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is, nearly ₹ 18.00 Crores is on this account of securitization service. Refuting the argument that gain on account of securitization is not a taxable service and the appellant did not create the securities, but sold the asset bagged loans or actionable claims to IDBI, who created the security and sold the same, it is his submission that this argument is not plausible because of the fact that if the appellant did not create and sale securities, "gain on securitization" would be a .....

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comments of the auditors and also their licensing authority i.e. RBI. Besides the act of securitization which is converting actionable claims into marketable securities is normally associated with the service of realizing periodical installments of principal + interest of loan (claim) and on that service the tax would be due. On the issue of penal interest for fore-closure of loan, the ld: Special Counsel though fairly accepted that in subsequent years, the ld. adjudicating authority has accepte .....

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he gross taxable value for the financial years 2004 to 2006-07, hence the Order is bad in law. 6. Heard both sides at length. The assesse-appellant are a Non Banking Financial Company (NBFC) registered with the Reserve Bank of India. During the relevant period, the appellant had rendered various financial services and received financial income, which the Department alleged to fall under the taxable category of 'banking and other financial services' as defined under section 65(12) and als .....

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rendering those non-taxable services. 7. The Ld. Advocate has contended that the assesse-appellant had been rendering the following services, namely, Financial leasing (which was last entered in the year 2001-02), equipment leasing, Hire Purchase Agreements, Operating lease agreements, Hire Purchase Finance Agreements, Loan against Hypothecation. 8. The ld. Commissioner after discussing the meaning of 'banking and other financial services' as prescribed at section 65(12) of the Finance. .....

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er the category of banking and other financial services with effect from 16.07.2001; whereas, 'operating lease', 'loan against hypothecation', and 'hire purchase finance' are not taxable under the category of 'banking and other financial services'. 9. Before proceeding ahead, it is necessary to refer to the meaning of the taxable entry, namely, 'banking and other financial services', as prescribed at section 65(12) as was in force at the relevant time, whi .....

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anagement, all forms of fund management, pension fund management, custodial, depository and trust services, but does not include cash management (vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; (vii) provision and transfer of information and data processing; (viii) banker to an issue services; and (b) foreign exchange broking provided by a foreign exc .....

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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 making the lease payment;] 11. On application of service tax to 'banking and other financial services' with effect from 16.07.2001, the scope of levy had been clarified by the board vide letter F.No. BII/I/2000 -TRU, dated 09.07.2001 as: "2. Financial services cov .....

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t company. Such companies should be either a banking company or a financial institution or non-banking financial company to come under the tax net. In other words individuals, proprietorship or partnership firms will not come under the tax net. The leasing or hire-purchase may be of motor vehicles, machinery and equipment or other goods. 2.1-2 In the case of leasing or hire purchase, it is understood that the general business practice is as follows: The service provider enters into a leasing or .....

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d for the monthly recovery. Every agreement bears a unique number. 21-3 The EMIs consist of recovery of principal amount (towards the original cost of the equipment) and finance/ interest charges. The allocation between the principal and the finance/ interest charges are known to and agreed upon by both the parties. The customer repayment schedule contains the details of the EMIs with the break up for the principal and the interest. In respect of leasing and hire-purchase, the amount recovered a .....

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Accordingly it is clarified that service tax in the case of financial leasing including equipment leasing and hire purchase will be leviable only on the lease management fee/processing fee/documentation charges (recovered at the time of entering into the agreement) and on the finance/ interest charges (recovered in equated monthly instalments) and not on the principal amount. 2.1-4 A question has been raised whether lease or hire-purchase agreements entered into prior to the imposition of levy ( .....

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ther financial service: (i) ........................................................ (ii) ................................................ (iii) The term "financial leasing" is explained as a lease transaction fulfilling the following conditions, namely :- (a) a contract for leasing of a specific asset is entered into between two parties, (b) the contract is for use and occupation of the specific asset, (c) the lease payments are calculated so as to cover the full cost of the asset tog .....

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ses the asset. Risks and rewards incidental to ownership of an asset is also with the lessee. All lease transactions particularly sale and lease back transactions are to be examined carefully on the basis of this clarification. 13. Both sides have referred to the judgement of the Honourable apex Court in Sundaram Finance Ltd's case (supra). The special Counsel Shri D.K.Acharya for the revenue argued that the services rendered by the appellant even though claimed as financial leasing, equipme .....

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banking and other financial services. 14. The facts of Sundaram Finance's case(supra) on which both sides placed reliance, are recorded at para 14 of the majority opinion as below: "14. The facts of the case are that On September 29, 1958, the Sales Tax Officer, 1st Circle, Ernakulam, issued a notice calling upon the appellants to file returns of their turnover from sales in the course of business and to secure registration as dealers under the Travancore-Cochin General Sales Tax Act, .....

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parties within the State of Kerala and that they were not "dealers" within the meaning of the Act. The Sales Tax Officer by orders dated March 25, 1962, and July 6, 1962, held that the transactions between the appellants and certain parties within the State of Kerala were sales within the meaning of the Act and the appellants were dealers liable to be assessed under the Act. The Sales Tax Officer accordingly reiterated his demand upon the appellants to file returns of their turnover i .....

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power to go behind the documents and to determine the nature of the transaction, whatever may be the form of the documents. An owner of goods who purports absolutely to convey or acknowledges to have conveyed goods and subsequently purports to hire them under a hire-purchase agreement is not estopped from proving that the real bargain was a loan on the security of the goods. If there is a bona fide and completed sale of goods, evidenced by documents, anterior to and independent of a subsequent .....

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d not having sufficient money on hand borrows the amount needed from a third person and pays it over to the vendor, the transaction between the customer and the lender will unquestionably be a loan transaction. The real character of the transaction would not be altered if the lender himself is the owner of the goods and the owner accepts the promise of the purchaser to pay the price or the balance remaining due against delivery of goods. But a hire-purchase agreement is a more complex transactio .....

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of the stipulated hire and the price for exercising the option. This class of hire-purchase agreements must be distinguished from transactions in which the customer is the owner of the goods and with a view to finance his purchase he enters into an arrangement which is in the form of hire-purchase agreement with the financier, but in substance evidences a loan transaction, subject to a hiring agreement under which the lender is given the licence to seize the goods." 16. After analysing the .....

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o keep the vehicle insured, it is expressly recited that the vehicle has been given as security for the loan advanced by the appellants. As a security for repayment of the loan, the customer executes a promissory note for the amount paid by the appellants to the dealer of the vehicle. The so-called "sale letter" is a formal document which is not made effective by registering the vehicle in the name of the appellants and even the insurance of the vehicle has to be effected as if the cus .....

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ent undoubtedly contains several onerous covenants, but they are all intended to secure to the appellants recovery of the amount advanced. We are accordingly of the view that the intention of the appellants in obtaining the hire-purchase and the allied agreements was to secure the return of loans advanced to their customers, and no real sale of the vehicle was intended by the customer to the appellants. The transactions were merely financing transactions.The appeals will therefore be allowed wit .....

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cts between the appellant and its customers, but only on the basis of interpretation/analysis of the provisions and circulars arrived at the conclusion on the taxability/non-taxability of various services rendered by the appellant. During the course of argument before this forum, the appellant had submitted sample copies of agreements relating to lease agreements entered prior to and after 16.7.2001, hire purchase agreements before and after 16.7.2001, hire purchase finance agreements, loan-cum .....

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ents of ₹ 37,325/- each had been mentioned. From the said agreement it is clear that for the equipment valued at ₹ 7,84,241/-, the customer agreed to pay a total amount of ₹ 8,95,800/- in 24 equal monthly instalments of ₹ 37,325/-. It is necessary to refer to the some of the relevant clauses of the said agreement which are reproduced as below: "01. The Lessor hereby leases and the Leasee hereby takes on lease the Equipment described in the FIRST SCHEDULE on the terms .....

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bear responsibility for any damage prior to or during delivery. The delivery and freight, charges from the premises of supplier shall be to the account of the Lessee. It is hereby agreed that notwithstanding any delay.in delivery caused for reasons beyond the control of the Lessor, the Lessee shall be liable to pay the lease amount from the date of commencement of the lease and the Lessor shall not be liable for any loss caused to the Lessee by reason of delayed delivery and all charges and obli .....

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se. 04. RENT PAYMENTS Subject to right of the Lessor to vary rent as provided hereinafter, the Lessee shall during the said term (in addition to other considering payable in respect of this lease) punctually pay to the Lessor at its Registered Office on the respective due dates, free of any other deduction whatever, as rent for the Equipment, the sum of money specified in the SECOND SCHEDULE to this Agreement. 05. OWNERSHIP The property in the Equipment "shall at all times remain solely and .....

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rees the ownership of the Equipment, undisputedly rests with the Lessor. 14. SURRENDER Upon the earlier termination of this Lease Agreement in the event of one such proposal from the Lessee and the Lessor Agreement, at its sole discretion, to such proposal of premature termination of the Lease Agreement, then the Lessee shall deliver to the Lessor the Equipment at such place as the Lessor may specify in good repair, condition and working order, ordinary wear and tear resulting from proper use th .....

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g acts or things :- (a) fail to pay within the stipulated time any of the lease rentals, interest or other amounts payable under this Agreement or under any other Agreement with the Lessor, whether demanded or not ; (b) die, become insolvent or compound with creditors ; (c) in the opinion of the Lessor, substantial change in Lessee's ownership takes place ; (d) the Lessee being a limited company shall pass a resolution for voluntary winding-up or. suffer a petition for winding up presented a .....

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vernment or any public authority any taxes or charge due in respect of the Equipment ; (i) remove any of the Equipment to any other place without prior written permission of the Lessor ; (j) break or fail to perform or observe any conditions on his/its part herein contained ; (k) in the opinion of the Lessor (which shall be conclusive and binding on the Lessee) there shall be or arise any danger or possibility of the Lessor's not receiving or recovering the full amount due to the Lessor unde .....

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slate); and (l) fails to furnish to the Lessor the information rightfully required by it or any of the information submitted by the Lessee is found to be false. then on occurance of any such event, the rights of the Lessee under this Agreement shall forthwith stand determined 'IPSO FACTO' without any notice to the Lessee and the entire overdue amount receivable from the Lessee together with all-future lease rentals for the balance of the said term without any abatement shall thereupon be .....

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est due on the defaulted instalments, damages for breach of Agreement, other charges/expenses realizable from the lessee and all costs occasioned by the Lessee's default, In the event of the Lease Agreement being determined as aforesaid before its full term expires, the Lessee shall forthwith deliver to the Lessor all Certificates and Policies of Insurance and all other documents relating to the said Equipment. 20. FINANCE CHARGES The Lessee shall also be liable to pay. Finance Charges @ 2.2 .....

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ncelled unilaterally by the Lessee for any reason whatsoever until the period indicated in the schedule is over and the Lessee has completed payments of all contracted lease rentals. 27.COLLATERAL SECURITY The monthly payment of lease rentals for the Equipment shall be secured by delivery to the Lessor of a Demand Promissory Note to be executed by the Lessee for the value of ₹ 8,95,800/-(Rupees Eight Lacs Ninety Five Thousand only). 18.2. Four sample copy of agreement for the period after .....

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47 and each installment as ₹ 10,253/-. Also, the delivery order enclosed there with reflects that it was addressed to M/s Dehradun Premier Motors Pvt.Ltd., wherein the cost of vehicle was shown as ₹ 4,08,248/-, margin money paid directly as ₹ 53,506/-, the loan amount to the customer as ₹ 3,65,000/- and the arrangement between the appellant and the customer was shown as a "loan-cum-hypothecation'' facility. On going through the said agreement it is noticed t .....

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s 'Ambassador Classic-2000' and its cost as ₹ 4,00,791/-, In schedule-II the period of lease as 36 months, the lease rent for 35 months was ₹ 8,661/- and for 36th month it was ₹ 8,670/- and in Schedule-Ill the period is mentioned along with the total installment payable as ₹ 9,744/- for 35 months and ₹ 9,754/-for 1 month. The promissory note attached to the said agreement was for a sum of ₹ 3,50,794/-. In the letter addressed by the appellant dated 14. .....

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eement of lease dated 31.01.2006 between the appellant and Tarmani Mahakud submitted reflects at Schedule-I, under the column 'description' as "multi-utility vehicle Bolero DX Mahindra", its cost as ₹ 4,95,776/- and period of lease as 35 months. Schedule-III of the said agreement shows the period as from 01.03.2006 to 01.12.2008, payment of the amount in 34 installments of ₹ 12,441/- and 1 installment of ₹ 12,441/-. A Promissory note was also enclosed along wi .....

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llant approached for a loan-cum-hypothecation facility 27.04.2015. 18.5 The Appellant have submitted 5 (five) numbers of "hire purchase agreements' entered into before 16.07.2001.First agreement dated 27.04.2001 was between Shri Harish Kumar and the Appellant. The title of the agreement is "Hire Purchase Agreement". The description of the Appellant and the hirer and other particulars mentioned in the said agreement strongly relied by the ld.Advocate is reproduced below:- WHERE .....

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nt provided to the Hirer by the Company and the Company has agreed by its scheme of operation duly accepted by the Hirer to provide funds to the Hirer, for the said purpose. WHEREAS the Hirer has identified the vehicle and the supplier/dealers thereof and the parties agree and understand that all types of produce warrants as to running and maintenance of the vehicle are that of the vehicle manufacturer/supplier/dealer only and no claim of whatsoever nature will be against the Financier. WHEREAS .....

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are duly paid to the Company on the terms and conditions more particularly set out hereunder. The term 'Bankers' wherever appearing hereinafter shall mean -Allahabad Bank having Head Office at 2, Netaji Subhas Road, Kolkata-700001 and branch at 19, Nelli Sengupta Sarani, Kolkata-700087. The main conditions which need to be referred to are - "01. HIRED ARTICLE AND TENURE The Company shall provide funds for acquisition of the Hired Articles set out in the Schedule I hereto and the Hir .....

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r. The Annexures hereto shall form an integral part of this Agreement." 03. HIRER'S WARRANTIES c) LOCATION Keep the Hired Article at the Hirer's said premises and shall permit the Company and/or its agent at all times to enter upon any premises at which the Hired Article is kept/parked for the purpose of verification and also repossessing the Hired Article under the provisions of Clause 15 of this Agreement, and shall not under any circumstances change the location of the Hired Arti .....

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these presents over the Hired Article together with any accession, improvements and additions made thereto by the Hirer as clearly provided in Clause 3(1) of this Agreement and rights of the Hirer shall be subject to the beneficial rights of the Company and the Hirer shall be deemed to be holding the Hired Article in trust for the Company. The Company shall be at liberty to hypothecate the Hired Article in favour of the Bankers until the Hirer shall pay the entire amount due hereunder. 09. COLL .....

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amount or amounts due to it under this Agreement or of its being unable to exercise any or all the powers or rights or enforce any or all of the benefits conferred upon it by this Agreement whether by reason of any act, deed, or omission on the part of the Hirer or by reason of any circumstance or occurance whatsoever beyond the power and control of this Hirer; k) change of management either due to ownership or control; 18.6 In the Schedule-I to the said agreement, the cost of asset, namely Mar .....

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ellant for an amount of ₹ 3,29,040/-. A copy of the invoice issued by D.D.Motors in favour of Shri Harish Kumar dated 27.04.2001 was also enclosed wherein the total price of the asset was shown as ₹ 2,90,400/-. 18.7 The second agreement was dated 13.03.2001 between Mr.Tariq Khursheed reflecting the same conditions. In Schedule-I the description of the asset was shown as Mahindra Sawari and the cost of asset as ₹ 3,93,117/-. In Schedule-II besides cost of asset initial payment w .....

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ed in favour of the Appellant dated 13.03.2001. A letter of the Appellant dated 13.03.2001 addressed to Amit Auto Sales intimating that the Appellant could extend finance to Mr.Tariq Khursheed. Also the invoice of Amit Auto Sales dated 12.03.2001 was enclosed showing the total cost of the vehicle as ₹ 3,93,117.00. 18.8 The third agreement is between Mr.Surinder Singh and the Appellant dated 14.06.2000 on some conditions. The cost of the vehicle in Schedule-I was shown as ₹ 3,10,000/- .....

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#8377; 1,42,000/- with financial charges ₹ 39,831/- and the total amount payable in 36 installments was ₹ 1,81,831/- having 1 installment of ₹ 5,081/- and 35 installment as ₹ 5,050/-. Schedule-Ill mentions total number of installments with due date and the amount of installment. Promissory Note for a amount of ₹ 1,81,831/- was executed by the customer in favour of the Appellant dated 28.06.1999. Also an invoice of Jalan Distributor in favour of the customer Shri Rak .....

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1,83,000/-, financial charge is ₹ 66,984/-. The total amount financed was ₹ 2,49,984/- which were payable in 48 installments of ₹ 5,208/-. A promissory note was executed in favour of the Appellant for ₹ 2,44,984/- by the customer. 18.10 The second agreement is dated 06.01.2003 between the Appellant and Mrs.Barnali Dey. In Schedule-I, the description of the asset is shown as 1 number of Tata Sumo value and its cost as ₹ 5,64,000/- in schedule-II the said cost of the .....

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50/-. The third and fourth agreement is between Shri Ashish Mehrotra and the Appellant dated 13.07.2002 and Mr.Birender Sah and the appellant more or less on the same terms and conditions relating to the asset/vehicle HM-Porter cost of which is shown as ₹ 2,55,000/- and HM-RTV cost of which was shown as ₹ 5,12,305/-. The total financial amount was ₹ 2,60,150/-and payable in 33 installments of ₹ 6,550/- in the former case and in the second case it was ₹ 4,38,912/- pa .....

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is hereby agreed and declared by the parties as under: a) The Hirer/s shall always remain liable to repay the Financed Amount as mentioned the Schedule if hereto along with finance charges thereon and all other charges payable under this agreement irrespective of MAGMA taking possession of the said Asset(s) which would form part of the security of MAGMA for recovery of its dues. The said Asset(s) shall be held by the Hirer/s for and on behalf of MAGMA and in trust for MAGMA. b) for the purpose o .....

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e levied against MAGMA, whether by the Hirer/s or by any other person or authority, in respect of the said Asset(s). 18.12 In Schedule-I to the said agreement the description of the asset were shown as Ashok Leyland and the cost of the asset is ₹ 9,18,747/. In Schedule-II, the amount financed was shown as ₹ 8,09,100/- and financial charges for 3 years as ₹ 1,48,800/-. Insurance premium for 2nd and 3rd Year is ₹ 37,200. The total amount payable in 31 installment is ₹ .....

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n of the goods was shown as Tata 2515 and the cost of the asset is ₹ 6.00 Lakhs, total financial amount of ₹ 6.00 Lakhs is payable in 35 installments. The last agreement is between Shri Santosh Mahapur and Shri Nishikant Mahapur and the appellant whereby in Schedule-I, the description of the asset is shown as Tata 8K/1613 and the cost of the asset is shown as ₹ 10,96,348/-. The amount financed as ₹ 8,17,289/-, financial charges ₹ 2,20,668/-, insurance charges for se .....

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e 32 installments of ₹ 12,643/- during the period 01.07.2004 to 01.02.2007. A promissory note for ₹ 4,04,576/- had been issued in favour of the Appellant by the customer. The second agreement was between the Appellant and Mr.Rajkumar & Mr.Bajrang Agarwal dated 21.05.2004t. In the schedule the description of the asset was shown as M/s.Tata Model LPT 2513 and cost of the said asset as ₹ 9,74,857/-, loan amount as ₹ 8,42,000/- payable in 47 installments during the period .....

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he Appellant and its customers from the agreements/documents placed before us. Broadly, we find that in almost all the cited agreements/contacts, the Appellant had been approached by the respective customers for procuring/purchasing a vehicle, (except agreement dated 22.03.2000 between the Appellant and M/s.Shiva Cement Ltd. which relate to lease of equipment). We find that the customers were required to pay the amount/value shown in the schedule-II of the agreements in monthly installments for .....

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noticed that some amount was initially paid, thereafter, the remaining amount was paid by the appellant to the dealer and the initial payment is described as down payment, margin money, etc., but it is not clear in all cases as who had paid this initial payment. In the event such margin money is paid by the customer, and from other attendant circumstances it could not be said that the arrangement is as an operating lease and the asset is owned by the Appellant. Similar impediments, also encounte .....

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en though the demand is spread over a period of five years i.e. from April 2002 to March, 2007, however, agreements for all these years had not been enclosed. In absence of complete facts supported by documents indicating the nature of true transaction between the appellant and its customers, it would certainly be difficult to arrive at a conclusion, whether the claim of the appellant that their transactions involve financial leasing, equipment leasing and hire purchase, where the commissioner c .....

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efore, all these agreements need to be scrutinized along with supported evidences/documents which could not be possible at this appellate stage as all the transaction documents are not enclosed with the agreement; besides these agreements were not examined/scrutinized by the original adjudicating authority even though equipped with enough manpower to undertake such a herculean task. In the result, we are of the firm opinion that ascertaining of the facts are vital, to application of the principl .....

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er value representing securitization transaction deducted from the total value as non-taxable service for the period 2002-03 & 2003-04 is correct or other wise. The claim of the appellant is that in addition to providing aforesaid services they also entered into the transaction of securitization, whose value had been rightly deducted from the gross taxable value for the financial year 2002-03 & 2003-04 being in the nature of sale transaction. It is their contention that they have followe .....

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e interest representing schemes on incoming cash flows from the asset or pool of assets from the third party customers tradable that securitization, It was their contention that the first stage of transaction happens between originator and SPV and the second stage between SPV and investor. The ld.advocate categorically claimed that the activity undertaken by the Appellant is sale of financial assets and not a service that alleged by department is their activities are limited to the first stage o .....

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can either be performed by the buyer himself or the buyer, may appoint either the seller of the securities or a third party to undertake activities of collection, recovery, accounting of the installments due from the customers. He has submitted that for such activities which are in the nature of servicing separate agreements are entered into for a consideration. It is his categorical submission that during the relevant period the appellant had undertaken only the securitization transaction and .....

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pl. Counsel Shri D.K.Acharaya referring to the meaning of securitization mentioned at page 286 of The Economics of Money Banking and Financial. Markets(fifth edition) By Fredric S. Mishkin contended that the process of securitization involves rendering financial services. It reads as: "SECURITIZATION. An important example of a financial innovation arising from improvements in both transaction and information technology is securitization, one of the most important financial innovations in th .....

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at they can cheaply bundle together a portfolio of loans (such as mortgages) with varying small denominations (often less than 4100,000), collect the interest and principal payments on the mortgages in the bundle, and then "pass them through" (pay them out) to third parties. By dividing the portfolio of loans into standard ized amounts, the financial institution can then sell the claims to these interest and principal payments to third parties as securities. The standardized amounts of .....

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olve rendering of the service and the Ld. Commissioner has simply deducted the value shown against securitization for the respective years without verification of the facts whether it was a sale or service by analyzing the respective agreements. 23. From the submissions advanced by both sides we find that the securitization as narrated by the ld. Advocate, taking cue from the RBI guidelines, is claimed by the Appellant to have been limited to the first stage, however, whether it involved the sec .....

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ansaction or service as argued by the revenue, and accordingly are leviable to service tax or otherwise. Therefore, this aspect also needs to be remitted to the Ld. Commissioner for consideration afresh. 24. It is also the grievance of the revenue in the appeal filed against the impugned order that while calculating the service tax liability for the period 2004 - 05, 2005 - 06 and 2006 - 07, the adjudicating authority had rejected,the RBI statement figures, without recording any reasoning in thi .....

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. We do not see merit in the said contention of the appellant, in as much as, while rejecting the computation of the Department based on figures submitted to RBI, the ld. Commissioner has not recorded any observation as to why the said figures be discarded. Any order/finding without reasons is cryptic and it'll be difficult for the appellate authorities to examine the correctness or otherwise of such findings, hence such order cannot be sustained in law. The Hon'ble Supreme Court in the .....

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ording of reasons could lead to dual infirmities; firstly, it may cause prejudice to the affected party and secondly, more particularly, hamper the proper administration of justice. These principles are not only applicable to administrative or executive actions, but they apply with equal force and, in fact, with a greater degree of precision to judicial pronouncements. A judgment without reasons causes prejudice to the person against whom it is pronounced, as that litigant is unable to know the .....

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by reasons in discarding the RBI statement figures and adopting the figures submitted before him. 27. The next issue for determination is whether "collection commission" should be chargeable to service tax under the category of 'Business Auxiliary Service'(BAS). The ld. Commissioner while confirming the said amount under the taxable service BAS as defined under Sec.65(12) observed that it was received towards the services rendered by the Appellant in relation to collection of .....

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t into force w.e.f. 01.07.2003. It is their contention that commission agent involved in the sale and purchase of excisable goods are only liable to pay service tax under BAS and if at all any liability arises as commission agent then it would be after 16,06.2005. In support he has referred to the decision of this Tribunal in the case of S.R. Kalyankrishan Vs.CCE 2008 (9) STR 255 (Tri.-Bang.). 28. From the impugned order we find that the ld.commissioner has not confirmed demand of service tax on .....

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.................................................... (iv).................................................... (v)..................................................... (vi)..................................................... (vii).................................................... 29. We find that taxability of similar nature of services rendered by auto dealers/financial companies are considered by this Tribunal in the case of Bridgestone Financial. Services vs. Commissioner of Service Tax, Ba .....

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rticular transaction involving an interface between an automobile, dealer and bank or financial institution would per se amount to BAS. The identification of the transaction and its appropriate classification as the taxable BAS or otherwise must clearly depend upon a careful analysis of the relevant transactional documents. Only such scrutiny and analysis would ensure rational classification of the transaction." 30. After analysis of the agreement/transaction documents following the princip .....

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on that the service rendered by the Appellant are in the nature of promoting the business of client-banks and hence classifiable under BAS. As held in Pagaria Auto centre's case, it is necessary to examine/scrutinize the transaction to ascertain whether it is BAS or otherwise. Therefore, this issue also needs to be remitted to the Ld. Adjudicating authority for consideration afresh. We also find that in computing the demand under this category the ld. adjudicating authority has discarded the .....

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unt of ₹ 7,54,689/- was collected by the Applicant representing service tax and the amount of ₹ 69,52,945/- was collected as contingency deposit. Further, it is argued that that the amount of ₹ 93.00 Lakhs had been arrived by the department erroneously by considering the amount of ₹ 37,78,823/- twice. The adjudicating authority on the other hand observed that even though such claims have been made, but not supported by any evidence. We find merit in the said finding. It h .....

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tax as alleged by the department since at the initial stage of investigation the said facts were admitted by the Assistant Vice President (AVP) of the appellant/ Thus, it is necessary to lead more evidences by the appellant to substantiate their claim that the amount of ₹ 69,52,945/- which was collected from the customers/clients were nothing, but contingency deposits and not service tax. In the interest of justice, therefore, the Appellant be provided a further fair chance to produce befo .....

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ice cannot be excluded from the value as the amounts were collected as interest component of the loan. We find that for the period 2005-06( Oct.2005 to Mar.2006) to 2009-10, the ld. Commissioner vide Order-in-Original No.04 & 05 /Commr./ST/Kol/2012-13 dt. 24.04.2012, dropped a total demand of ₹ 22,85,29,000/- on the delayed payment charges, cheque bouncing charges, pre-payment charges. The Department has not filed any appeal against the said order. Besides, we find that the Tribunal in .....

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er is directed to record a detailed finding supported with reasons on its leviability to service tax. 30. Since most of the issues raised by the assesse and the revenue are remanded for reconsideration, hence, in our considered view, it would be inappropriate to record any observation on the applicability of extended period and penal provisions at this stage when the facts are not clear. The adjudicating authority would be free to decide after analysis of facts/evidences on record and that would .....

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