TMI Blog2019 (1) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... ost 10.09.2004. For the period prior to 10.09.2004, the service tax is payable including the interest element. Banking and Financial services - commission received from Insurance Company for canvassing their policies - Held that:- The appellant received commission from the insurance companies for promoting their products and thus acted as their agent. Therefore this falls under the category of insurance auxiliary service which was chargeable under reverse charge mechanism during the relevant period and the service tax has to be collected on it from the insurance company and not from the agent. Therefore, the demands on this count need to be dropped - demand set aside. Business auxiliary services - commission which they received from various vendors of the consumer durables, etc. - Held that:- Such commissions were exempted vide Notification No. 13/2003-ST until 09.07.2004 and service tax is chargeable thereafter along with interest. Time Limitation - Held that:- The appellants have not declared the value of the services to the department in their returns. Therefore they suppressed the value of taxable services from the department - the extended period of limitation can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mandate given to him and has also examined the nature of this activity and hence the demand on this account needs to be set aside on this point alone. Further, even on merits, he asserts that the nature of their activity is hire purchase financing and not hire purchase. Thirdly, he also argues that a major portion of the alleged taxable value is on account of interest which they realized, which, in any case could not have validly formed part of taxable value since interest on loan was not taxable as per Section 67 of the Act, as it existed at the material time. 4. With respect to the second demand on the commission received from insurance companies, he submits that the commission which they received is from insurance companies for canvassing their insurance products. Therefore, it rightly falls under the category of insurance auxiliary service and would not fall under the more general category of banking and other financial services . Therefore, this cannot be taxed as banking and financial services . As far as the insurance auxiliary services are concerned, these were under reverse charge mechanism during the relevant period and hence tax, if, any has to be paid by the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his (hirer) default in payment of instalments to the appellants. The hirer becomes the owner of the vehicle - the title to the vehicle vests with the hirer who is a purchaser and it is in his name that the vehicle stands registered and insured and the appellants are the nominees. The appellants contention is that there is a fundamental difference between a hire purchase agreement and hire purchase finance agreement, namely that in the case of the former, the title to the goods remains with the hire purchase company which bails the goods to the hirer in return for periodical payments and the title to the goods is transferred to the customer/hirer only if he exercises the option to purchase the same on full payment to the hire purchase company, while in the case of the latter, the title to the goods vests in the purchaser right from the beginning and the hire purchase finance company who has only a right to seize the goods for non-payment of the loan, is not the owner of the goods. This contention requires to be accepted in the light of the apex court s decision in Sundaram Finance Ltd. v. State of Kerala another (1966) 17 STC 489 in which the distinction between hire purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td., (supra) case applies. On the related argument that interest on the money earned in hire purchase was exempted, Learned AR would submit that this issue is no longer res integra and it has been settled at the hands of the Hon ble Apex Court in the case of Association of Leasing Financial Service Companies [2010 (20) STR 417 (S.C.)] paras 32 37 were as follows: 32. For answering the above, we need to keep in mind the doctrine of pith and substance and the rule of interpretation of legislative entries. These have to be applied to what is stated hereinabove in the earlier part of our judgment in which we have dealt with the concept of banking and other financial services and the nature and character of service tax as a tax on activities. We may reiterate that Equipment Leasing and Hire- Purchase Finance are activities of long term financing and they fall within the ambit of banking and other financial services . As stated above, a financial lease is a lease that transfers substantially all risks and rewards incident to ownership. In the said lease, the lessor (NBFC) merely finances the equipment/asset which the lessee is free to select, order, take delivery a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easing and hire-purchase is concerned, the amount received as principal is not the consideration for services rendered. Such amount is credited to the capital account of the lessor/hire-purchase service provider. It is the interest/finance charge which is treated as income or revenue and which is credited to the revenue account. Such interest or finance charges together with the lease management fee/processing fee/documentation charges are treated as considerations for the services rendered and accordingly they constitute the value of taxable services on which service tax is made payable. In fact, the Government has given exemption from payment of service tax to financial leasing services including equipment leasing and hire-purchase on that portion of taxable value comprising of 90% of the amount representing as interest, i.e., the difference between the instalment paid towards repayment of the lease amount and the principal amount in such instalments paid (See Notification No. 4/2006 - Service Tax dated 1-3-2006). In other words, service tax is leviable only on 10% of the interest portion. (See also Circular F.No. B.11/1/2001-TRU dated 9-7-2001 in which it has been clarified that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment employees and their offices, the ownership of the goods lies with the appellants and gets transferred to the employee only after he pays all the hire charges and thereafter pays a transfer fee of rupee one. Therefore, the activity undertaken by the appellant is clearly hire purchase and not hire purchase finance and is exigible to service tax during the relevant period. As far as the element of interest on the value of services is concerned, the department relies on the judgment of the Hon ble Apex Court in the case of Association of Leasing Financial Service Companies (supra) in which, it was held that the interest and finance charges along with lease and processing fee and documentation charges should be treated as hire purchase chares for the services of the hire purchase and service tax charged accordingly. The ratio laid down by the Supreme Court is that the entire amount is chargeable to service tax including the interest subject to any exemption notification. However, for part of the relevant period in this case, Section 67 excluded from the value of taxable service interest on loans vide Section 90(c) of the Finance Act (No.2) of 2004 w.e.f. 10.09.2004 by intr ..... 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