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M/s Eicher Motors Ltd. Versus C.C.E., Indore

Demand of service tax - Banking and Other Financial Services - whether the hire purchase service rendered by the appellant prior to 16.08.2002 was covered under the scope of BOFS as defined under section (65) (10)/(12) - Held that:- as evident that to be covered under BOFS prior to 16.08.2002 the hire purchase service had to be rendered by such body corporate which was a banking company or a financial institution including a non-banking financial company. As per section 65 (11) ibid banking comp .....

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by a body corporate were covered under BOFS only if such body corporate satisfied the requirement of being a banking company or a financial institution including a non-banking financial company.

All the hire purchase agreements in respect of which the demand has been confirmed under BOFS were entered into prior to 16.08.2002 and that this assertion was made even before the primary adjudicating authority and has not been contested in the primary adjudication order. CBEC vide circular .....

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r BOFS. Ld. advocate for the appellant fairly conceded that (i) while all the hire purchase agreements in respect of which the service tax demand of ₹ 39 lakhs has been confirmed were entered prior to 16.08.2002, but he could not confirm whether all the vehicles thereunder were also delivered prior to 16.08.2002 (ii) in respect of such hire purchase agreements where the vehicles were delivered on or after 16.08.2002 the service tax under BOFS would be leviable and for that purpose the case .....

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ite of being asked to do so several times evidently tantamount to suppression of facts which as per Section 73 ibid is sufficient for invocation of extended period. We however need not dwell on this issue in greater detail as the impugned demand has not been found to be sustainable except to the extent of such hire purchase agreements where the delivery of vehicle took place after 16.08.2002 which the appellant has also conceded and this demand is likely to be very small. Penalty under Section 7 .....

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: Mr B L Narsimhan, Adv For the Respondent : Mr Amresh Jain, DR & Ms Suchitra Sharma, DR ORDER Per Mr. R K Singh Appeal has been filed against order and original dated 17.12.2008 in terms of which service tax demand of ₹ 51,14,445/- along with interest and penalty (under Section 78) was confirmed under "Banking and Other Financial Services" (BOFS) [section 65 (12)/(105) (zm)/ (zp) of the Finance Act, 1994]. The appellant is manufacture of motor vehicles and also provided fina .....

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ppellant was a corporate but not a banking company or a financial institution or a nonbanking financial company and therefore financial leasing service in the form of hire purchase rendered by it was not liable to service tax under section 65 (10)/(105) (zm)/(zp) ibid. (iii) As regards the service tax charged on interest income it stated that interest does not reflect the value of the service rendered as was clarified by explanation clause (viii) added in 2004 to Explanation (1) to section 67 of .....

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interest, it cited the CBEC circular No. 80/10/2004-ST, dated 17.09.2004 and referred to Explanation 1 to section 67 ibid and added that it being a clarificatory, the Explanation would have retrospective effect as has been held in the case of M.P. Laghu Udhyog Nigam Ltd Vs. CCE, Bhopal [2015 (37) STR 308 (Tri.-Del)] . 3. Ld. Departmental Representative, on the other hand, argued that (i) the hire purchase service rendered by a body corporate was covered under the definition of BOFS and therefor .....

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on the amount of interest earned on the loans sanctioned, the provision for exclusion of interest from the value of service was incorporated in section 67 only in 2004 and therefore prior thereto, the service tax was leviable on the interest income. 4. We have considered the contentions of both sides. As regards the impugned demand amounting to ₹ 39 lakhs, the basic issue to be decided is whether the hire purchase service rendered by the appellant prior to 16.08.2002 was covered under the .....

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v) securities and foreign exchange (forex) broking; (v) asset management including portfolio management, 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; and (vii) provision and transfer of information and data processi .....

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er body corporate, namely:- (i) financial leasing services including equipment leasing and hire-purchase by a body corporate; (ii) credit card services; (iii) merchant banking services; (iv) securities and foreign exchange (forex) broking; (v) asset management including portfolio management, 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 investmen .....

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n to banking and other financial services;" The provisions as amended in and applicable from 2003 are reproduced as under:- (12) "banking and other financial service" 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, namely:- (i) financial leasing services including equipment leasing and hire-purchase by a body corporate; (ii) credit card services; (iii) merchant bankin .....

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d data processing; (b) foreign exchange broking provided by a foreign exchange broker other than those covered under sub-clause (a); Section 65(105)(zm) to a customer, by a banking company or a financial institution including a non-banking financial company, in relation to banking and other financial services; Section 65(105)(zp) to a customer, by a body corporate other than the body corporate referred to in sub-clause (zm), in relation to banking and other financial services;" It is as evi .....

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ng Regulation Act, 1949] (10 of 1949) and includes the State Bank of India, 2[any subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), any corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), and any other financial institution notified by the Central Government in this behalf];" "Explanation: "Any company ........" As per section 5 of the Banking .....

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ion as per Section 65(45) has a meaning assigned to it in clause (c) of Section 45I of Reserve Bank of India Act, 1934. Section 45I(c) of the RBI Act inter alia makes it expressly clear that "financial institution does not include any institution, which carries on as its principal business (a) agricultural operations, (aa) industrial activity....". Thus the appellant does not qualify to be called a financial institution as industrial activity is its principal business. Similarly, as pe .....

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ification in the Official Gazette, specify;" Thus, the appellant does not qualify to be called non-banking financial company. So, it is established that the appellant is not a banking company nor a financial institution including a non-banking financial company and therefore the service rendered by it prior to 16.08.2002 was not covered under BOFS because prior to that date financial leasing services including equipment leasing and hire purchase by a body corporate were covered under BOFS o .....

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01-TRU, dated 09.07.2001 issued at the time of introduction of levy of service tax BOFS in para 2.1.4 clarified that the hire purchase agreements entered into prior to the imposition of levy i.e. 16.07.2001 will not be chargeable to service tax provided the goods are also delivered prior to 16.07.2001. CBEC vide its circular No.B11/1/2002-TRU, dated 01.08.2002 classified as under:- "5.1 The definition of "banking and other financial service" has been amended to extend the levy of .....

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t asset management companies are not NBFC. Hence they would not come under the purview of service tax. This instruction stands amended now as Asset Management Companies being "body corporate" will henceforth be liable to pay service tax. Similarly all merchant bankers, portfolio managers, foreign exchange brokers etc who are "body corporate" will henceforth be liable to pay service tax." From the foregoing, it becomes evident that in respect of hire purchase agreements e .....

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agreements where the vehicles were delivered on or after 16.08.2002 the service tax under BOFS would be leviable and for that purpose the case may have to be remanded to the primary adjudicating authority for verification and computation. In the case of Art Leasing Ltd Vs. CCE, Cochin (Supra) CESTAT held as under:- "5. The Banking and Financial Services came under the Service tax net w.e.f 16-7-2001. At that time, CBEC issued clarification to the effect that in respect of Hire Purchase Con .....

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refore, the rate of Service tax will be the rate prevailing on the date on which the contract is entered into. Consequently, the demand of differential amount applying the higher rate, which came into effect from 14-5-2003, will not be applicable in respect of the contracts entered prior to that date. Hence, we set aside the impugned order and allow the appeal with consequential relief, if any." To sum up, it is held that service tax is leviable under BOFS in those cases where even if the h .....

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l only have prospective effect. We do not find any basis for this assertion as circulars are only clarificatory and do not (also cannot) lay down mandatory provisions. The appellant has contended that by adding the said clause (viii) to the Explanation 1 to Section 67, it was only clarified that interests on loans are not to be included in assessable value and therefore it has retrospective application. In the case of Thermax Ltd. Vs. CCE, Pune [2007 (8) STR 487 (Tri.-Mumb)] it was held with reg .....

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nsolidated service charges included in such interests receipt and discernible". It is thus evident that the issue whether the income from interest on loans was includible in the assessable value for the purpose of charging service tax is no longer res integra and has been decided in favour of the appellant. 8. Ld. Departmental Representative contended that the appellant did not cooperate in the investigation and did not provide figures in spite of being asked to do so repeatedly and that it .....

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