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2019 (9) TMI 583

..... ention income - Case of appellant is that since the subvention income is nothing but interest against the advances the same should not be subjected to service tax - recovery of amount not/short paid. Whether the amounts received by the Appellants from the vehicle manufacturer/ dealer and accounted by them in their book of accounts as subvention income should be subjected to service tax under the category of ‘Business Auxiliary Services’ as defined by Section 65 (19) of Finance Act, 1994? HELD THAT:- We are not in agreement with the submissions made by the appellants. Once we hold that the amounts received by the appellants as “subvention charges” are consideration for providing the business auxiliary services, the manner in which they are determined are irrelevant. They may be equivalent to difference of their interest earning on loan extended in normal course and under the special scheme or can be more or less than that is immaterial for treating it is as consideration for providing the service. Similar issue decided in the case of M/S HOUSING & DEVELOPMENT CORPORATION LTD (HUDCO) VERSUS CST, AHMEDABAD [2011 (11) TMI 95 - CESTAT, AHMEDABAD] where it was .....

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..... t of tax from the due date. Since the demand has been upheld, demand for interest too is upheld - Demand of interest upheld. Appeal dismissed - decided against appellant. - Service Tax Appeal No. 85741 of 2014 - FINAL ORDER NO. A/86593/2019 - 13-9-2019 - Mr. S.K. Mohanty, Member (Judicial) and Mr. Sanjiv Srivastava, Member (Technical) Shri Abhishek A. Rastogi with Shri Pratyush Sana, Advocates, for the Appellant Shri M.K. Sarangi, Additional Commissioner, Authorised Representative for the Respondent ORDER This appeal is directed against the Order in Original No 08/AC/Commr/Th-II/ST/2013 dtd 02.12.2013 of Commissioner Central Excise Thane - II. By the impugned order Commissioner held as follows: In the facts and circumstances of this case, which have been noted, discussed and found in the foregoing paragraphs i. I determine and confirm the demand of unpaid payable service tax totalling to ₹ 36,26,02,574/- (Rupees Thirty Six Crore Twenty Six Lakhs Two Thousand Five Hundred Seventy Four Only) under Section 73(2) of Chapter V of the Finance Act, 1994 for being recovered from M/s HDFC Bank Limited Kamala Mills, Trade World, C Wing, 10th Floor, Senapati Bapat Marg, Lower Parel, Mum .....

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..... 485 2010-11 71,08,59,101 7,32,18,487 2011-12 93,62,95,205 9,64,38,406 2012-13 (upto June 2012) 24,87,13,290 3,07,40,963 Total 36,26,02,574 2.3 A show cause notice dated 6th February 2013, was issued to the appellant asking them t6o show cause as to why the amount of tax short/ not paid by them should not be demanded and recovered from them under proviso to Section 73(1) of Finance Act, 1994 along with applicable interest as per Section 75 ibid. The notice also proposed penalties under Section 76, 77 & 78 of the Finance Act, 1994. 2.4 The show cause notice was adjudicated as per the impugned order. Aggrieved by the order Appellant has filed this appeal. 3.1 Appellant have in the appeal filed challenged the impugned order stating that4 i. They had extended credit facility to the purchaser of vehicle for which consideration is received in the form of interest subvention from the vehicle dealer in lieu of interest on loan receivable from the borrower in normal course. For them it is consideration towards lending of money and nothing but the interest income, and not subjected to tax. ii. In case of Cauvery Spinning and Weaving Mills Ltd [340 ITR %%)] it was held that to call an amou .....

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..... siness. Artificially vivisecting a single transaction to make the appellant as service provider in one occasion and recipient of service in another is not permissible in law. x. For levy of service tax it is intrinsic to have an element of provision of service. In absence of element of providing a service, there cannot be levy of service tax. In the present case there is no rendition of service since the consideration received from the activity of lending by appellant is only the interest and it does not contains any amount for providing the service. xi. They rely on the dictionary meaning of the term service and also TRU Circular dated 28.06.2006 to support the above preposition. They also rely on the following decisions in their support. a. Thyssenkrupp Jbm Private Limited [2005 (180) ELT 285 (Commr Appl)] b. Magus Construction Pvt Ltd [2008 (11) STR 225 (Gau)] c. Rohan Builders Ltd [2009 (13) STR 56 (T-Bang)] xii. Subvention do not arise due to any marketing service by the appellant to any third person but has direct correlation to its own business activities. They being banking company neither have any expertise or are equipped with any facility to market the motor vehicles. Th .....

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..... ]} c. They were under bonafide belief that no service tax was payable by them on the subvention income hence extended period of limitation could not be invoked for demanding service tax {Surat Textile Mills Ltd [2004 (167) ELT 379 (SC)], Chamundi Die Cast (P) Ltd [2007 (215) ELT 169 (SC)]} d. Since the issue involved is one of interpretation of law extended period could not have been invoked {Shri Shakti LPG Ltd [2005 (187) ELT 487 (T-Bang)], NRC {2007 (5) STR 308 (T-Mum)] xvii. Since the demand is not sustainable so the demand of interest to fails. xviii. Penalty cannot be levied in terms of the following decisionsa. a. H M M Ltd [1995 (76) ELT 497 (SC)] b. Coolade Beverages Ltd [2004 (172) ELT 451 (ALL)] c. Guru Instrument [1998 (104) ELT (ALL)} d. Smitha Shetty [2004 (156) ELT 84 (T)] approved in [2004 (174) ELT 313] e. Tamil Nadu Housing Board [1994 (74) ELT 9 (SC)] f. Hindustan Steel Ltd [1978 (2) ELT 159 (SC)] g. Port Officer [2010 (257) ELT 37 (Guj)] h. Transpek Industries Ltd [1999 (108) ELT 562] i. Paramjit Sandhu Engg [1999 (30) RLT 595] j. Avon Scales Co [1999 (31) RLT 373] k. Mechanico Enterprises [1998 (26) RLT 386]. 4.1 We have heard Shri Abhishek A Rastogi and Shri P .....

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..... es rates go below the base rate prescribed by RBI) Evidence suggests that the subvention income is not in the nature of discount from the dealer. In fact the appellant treats subvention as income from interest on loans and advances in its books, evidences the true nature subvention income as interest income for them. Subvention income is not to be treated as closure fees. Decision of Tribunal in case of Tat Motors Ltd [2019 (1) TMI 511] has not considered the arguments pertaining to dealer subvention. These arguments have been placed on record for consideration of the bench now. It is not the case that they have received this income as finance charges from the customers. Accordingly it will be unfair to treat subvention income as finance charges on principal amount recovered by the bank. To this effect this decision is sub silent and should not be applied to their case. Demand in any case prior to July 2011 is barred by limitation as extended period of limitation cannot be invoked in the facts and circumstances of this case. 4.3 Arguing for the revenue learned Authorized Representative submitted that- The appellant are in the business of financing vehicles. As per the business mode .....

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..... r rate of interest. In case of Housing Development Corporation Ltd (HUDCO) [2012 (26) STR 531 (T-Mum)], it was held that said fees is charged for prepayment is in lieu of some value added service. It was held that the method of calculation of charges in case of pre-payment based on the outstanding loan is not relevant. The issue is squarely covered by the decision in case of Speed Finance Service [2017-TIOL-2548-CESTADEL], Toyota Lakozy Pvt Ltd [2017 (52) STR 299 (T-Mum)] & Tata Motors Ltd [2019 (1) TMI 511]. The issue in case of IndusInd Bank Ltd relied upon by the Appellants is not the same. The illustration given in para 12.1 & 12.2 does not show how it is similar to the present case, rather the issue there was a simple loan agreement and if at all it involved any payment by consumer stores/ construction companies is not forthcoming. Since appellants had never disclosed the fact in respect of subvention income to the department in any manner prescribed in ST-3 returns they have suppressed the facts from department which came to light only by the way of audit. Hence extended period of limitation has been rightly be invoked for making the demand. On the issue of limitation .....

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..... nt, but does not include any activity that amounts to manufacture of excisable goods. Explanation - For the removal of doubts, it is hereby declared that for the purposes of this clause, - (a) Commission Agent person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person - means any (i) deals with goods or services or documents of title to such goods or services; or (ii) collects payment of sale price of such goods or services; or (iii) guarantees for collection or payment for such goods or services; or (iv) undertakes any activities relating to such sale or purchase of such goods or services; (b) Excisable Goods has the meaning assigned to it in clause (d) of Section 2 of the Central Excise Act, 1994; (c) Manufacture has the meaning assigned to it in clause (f) of Section 2 of the Central Excise Act, 1944; The taxable service in relation to Business Auxiliary Service is defined by Section 65(105)(zzb) as follows: Taxable Service means any service provided or to be provided to a client by any person in relation to business auxiliary ser .....

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..... that it is the manufacturer or the vehicle dealer, who promotes their business, not vice versa. If this is true then no explanation arises why the manufacturer as well as car dealers would part with a proportion of their commission, receivable from the noticee. Another question, which arises simultaneously, is why the manufacturer and vehicle dealer also share the advertisement costs to promote the business of the noticee. The noticee provides no explanation to these questions. They have no answer to offer. 16. It is wrong on the part of the noticee to plead that in this arrangement of things the noticee does not render any service to the manufacturer and vehicle dealers. In this scheme of things, the rendering of service is from both the sides. While the dealers and manufacturer promote the business of the noticee, it is the noticee who also promotes the business of the manufacturer and vehicle dealers. The availability of nil or very low interest to buy vehicle enable the dealers to enhance their business of vehicle selling. The facility of these special schemes serve as special purpose vehicle (SPV) or platform, whereon, the business of the manufacturer and the vehicle dealers .....

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..... It is settled principle in market that there are no free lunches. Any facility provided by an business entity to its client/ customer whether it is business or an individual comes with the associated cost. The associated cost is the consideration for provision of the said facility. Thus by providing or agreeing to provide the loans at lower rate/ nil rate to the customers of vehicle manufacturer/ dealers. Appellants have promoted the sale of the vehicle in the hands of such vehicle manufacturer/ dealer. Hence we have no hesitation in holding that the facility of nil/ low interest rate provided by the appellants to the customers of vehicle manufacturer is service classifiable under the category of Business Auxiliary Service as defined by Section 65(19) of the Finance Act, 1994, and the amount paid by the vehicle manufacturer/ dealer and accounted by the appellants as subvention income is the consideration for the provision of such service. 5.5 Appellants have strenuously argued before us that the amounts received by them from the vehicle manufacturers/ dealers is nothing but the loss of interest, they would have suffered on account of providing the loans at the reduced rate of inter .....

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..... ill the date of prepayment. It is also not necessary that when a loan is prepaid or reset, the lender suffers. In fact, foreclosure by prepayment and reset are relatable to lending and if an application for processing a loan application is chargeable to Service Tax and processing fee charged for foreclosure/prepayment of loan or reset of interest would also be chargeable. In fact, we are unable to see what is the difference between the liability of Service Tax in respect of application of a loan where the processing fee is charged which is independent of loan and over and above the interest, when we see here also it is over and above the interest. The processing fee is charged for considering the various aspects such as credit worthiness of the borrower repaying capacity of the borrower, period of loan vis-à-vis repaying capacity of the borrower, quality of assets of the borrower etc. When the proposal is made for prepayment of loan or resetting, processing the application is involved. Therefore, there is definitely an element of service in prepayment of loan or resetting of interest. As already discussed earlier, the definition covers any activity in relation to lending. 18 .....

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..... . In this context, the Tribunal in the case of Commissioner of Service Tax, Mumbai vs. J.M.D. Marketing Pvt. Ltd. - 2016 (46) S.T.R. 504 (Tri.- Mumbai) has held that the assessee would be liable to pay service tax on gross amount of commission received from banks for marketing of products. With regard to the submissions of the ld. Advocate that since no tax was deducted at source by the bank from the commission amount for income tax purpose, the same should not be considered for computation of the service tax liability, we are of the view that the Income Tax provisions are applicable entirely on different circumstances and the statute deals with payment of tax on the earning of income of the assessee concerned; whereas, contrary is the case under the Finance Act, where-under service tax is levied on the provisions of taxable service by the assessee. Hence, the service tax demand confirmed by the authorities below will be sustainable on merits. City Financial Consumer Finance India Ltd {2017-TIOL- 2363-CESTAT-Del] Brief facts of the case are that the appellant is a NonBanking Finance Company and is engaged, inter alia, in the business of providing various types of loans to its cust .....

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..... (52) STR 299 (T-Mum)] & 7. Appellant, admittedly, assists customers who desire to have their vehicles financed by bringing financial institutions and buyers together. For this, financial institutions offer them a commission on the loan amount sanctioned of which a portion is passed on the customer as an upfront subvention of the total interest payable. The appellant pays tax only on the actual commission received and the impugned order has confirmed tax of ₹ 18,28,528/- and ₹ 3,80,825/- for the two periods in dispute. Learned Authorized Representative relies upon Jaybharat Automobiles Limited v. Commissioner of Service Tax, Mumbai [2015-TIOL-1570-CESTAT-MUM] to contest the claim of appellant that the subvented component is not received as consideration by appellant. Further reliance was placed on Joshi Auto Zone Pvt. Ltd. v. Commissioner of Central Excise, Chandigarh [2016 (42) S.T.R. 739 (Tri.- Del.)] and on HBL Global Pvt. Ltd. v. Additional Commissioner of Income Tax [ITA No. 386/Mum/10]. Learned Chartered Accountant has sought to distinguish the factual position in these cases from those of the appellant. 8. We have perused the decisions cited by both sides. One .....

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..... loans from the banks. The respondents had undertaken to process those applications and after scrutiny forward them to the bank. Admittedly, for such services, they were paid commission by the bank, which was reflected in their account. Once consideration accrued to them, as against the services provided by them to the bank, by way of commission, it was hardly of any consequence how a portion of that commission, which as per the particulars provided by the Bank was given as pay out to assessees in respect of which even the TDS was deducted, was spent by them. If they chose to give some amount from that gross commission amount to their customers either directly or through the bank, it would not change the nature of the receipts in their hand. In another case, i.e. Em Pee Motors Ltd. v. CCE, Chandigarh reported in 2012 (25) S.T.R. 68, the Tribunal held as under :- 4. Considered arguments of both sides. It is very clear that as per Section 67 of Finance Act, 1994 Service Tax shall be paid on the gross amount charged by the service provider. It is also noticed that as per the submission of the appellant, the TDS certificate was issued by the Bank in the name of the appellant for deducti .....

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..... of limitation in this case could not have been invoked for the purpose of demanding the service tax. For the same reason they contend that penalties under section 78 could not have been imposed on them. Commissioner has in para 20 & 23, discussed the issue of limitation and penalty under Section 78 as follows: 20. The noticee had been aware of the true scope of these schemes and its twin benefits. They had also been aware how they all benefited from these schemes. They had also been aware that in the scheme of arrangement the noticee and also the vehicle dealer or manufacturer promoted business of one another. The promotion led to rendering of the defined taxable business auxiliary services, which was taxable and exigible to service tax. Despite such known taxability the noticee failed to the commandment of law. They did not even share the relevant facts of this rendering with the jurisdictional service tax authorities. Their ST-3 returns and its accompaniments remained silent and, thus, untrue. In consequence, the curative mechanism of the proviso to Section 73(1) of Chapter V of Finance Act, 1994 has been rightly invoked to extend limitation from one year to five year to capt .....

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..... were taking the CENVAT Credit in respect of the input services. On the contrary we find that appellants had never made any declaration about the subvention income to the department in prescribed manner or on ST-3 returns being filed by them. Thus appellant have deliberately withheld the information in respect of the subvention income recovered by them, from the department with the intention to evade payment of service tax. Hence we are of the opinion that extended period is rightly invoked for demanding service tax from the appellant. Same view has been expressed by this tribunal in the decisions relied upon by the Authorized Representative. Since we uphold that the demand by invoking extended period of limitation the penalty under Section 78 of Finance Act, 1994 to is sustained in light of the decision of Hon ble Apex Court in case of Rajasthan Spinning and Weaving Mills [2008 (238) ELT 3 (SC)]. 5.8 Penalty has been imposed by the Commissioner under Section 77 for various infractions noticed in complying with provision of law. For imposing penalty under Section 77 Commissioner has recorded as follows: 24. The above acts of the notice further led to improper and incorrect filing o .....

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