TMI Blog2015 (12) TMI 1356X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfied 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 No.B11/1/2001-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. - in respect of hire purchase agreements entered into by the appellant prior to 16.08.2002 where the vehicles were also delivered prior to 16.08.2002 were not liable to service tax under 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 wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs relates to the hire purchase income and ₹ 12,14,445/- pertains to the service tax leviable on the amount of interest earned by the appellant on the loans granted by it. The period of the impugned demand is from 2003-04 to 2006-07. (ii) All the hire purchase agreements were entered into prior to 16.08.2002 and the appellant 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 the Finance Act, 1994. (iv) It cited the judgement of CESTAT in the case of Art Leasing Ltd. Vs. CCE, Cochin [2007 (8) SDR 162 (Tri-Bang)] and others in support of the proposition that service tax under BOFS was not chargeable on such hire purchase agreements which were entered into prior to the date on which the service became taxable even if the instalments were paid s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 processing; 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; These provisions were amended in 2002. The provisions applicable from 16.08.2002 are reproduced as under:- (11) banking and other financial services means 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng financial company. As per section 65 (11) ibid banking company has the meaning assigned to it in clause (a) of section 45 A of the Reserve Bank of India Act, 1934 which is reproduced below:- S. 45A (a) banking company means a banking company as defined in section 5 of the 1[Banking 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 Regulation Act, 1949 company means any company which transacts the business of banking in India . Banking [as per Section 5(b) of Banking Regulation Act, 1949] means the accepting for the purpose of lending or investment ,of deposits of money from the public, repayable on demand or otherwise and withdraw by cheque, draft order or otherwise . From the foregoing, there can be no dispute that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 classified as under:- 5.1 The definition of banking and other financial service has been amended to extend the levy of service tax to body corporate other than those already specified earlier, providing specified services. The levy on body corporate, which have come into tax net as a consequence to this amendment, will be effective only from 16-8-2002. It may be noted that as a result of this amendment, all body corporate providing the specified banking and other financial service will come under the tax net. Earlier, it was clarified vide Ministrys instructions F. No. B-11/1/2001, dated 9-7-2001 that 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 entered into by the appellant prior to 16.08.2002 where the vehicles were also delivered prior to 16.08. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 regard to the insertion of the said clause, that the insertion of the explanation has removed an anomaly that existed earlier and it should be treated as clarificatory in nature i.e. w.e.f. 16.08.2002. In the case of Karur Vysya bank Ltd. Vs. Commissioner [2015-VIL-68-CESTAT-CHE-ST] CESTAT held the interest being a consideration for the liquidity forgone by the bank due to lending of the fund that is not brought within the purview of the Finance Act, 1994 for taxation in the absence of any consolidated 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 purp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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