TMI Blog2019 (9) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... ial 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 held that Interest is nothing but the time-compensation for somebody s money being retained by somebody else. The longer the period of retention, the higher will be the interest amount. In this background, the prepayment charges can never be considered to be in the nature of interest as prepayment only means payment before time. This should ideally result in refund of interest and not the demand for more interest because the borrowed money is being paid back before time. Thus we are not in position to agree with the argument of the appellants by which they contend that these subvention charges are nothing but interest on advances and hence exempt from payment of service tax.- demand of service tax in under the category of Business Auxiliary Services on the amounts received as subvention income by the Appellants is upheld. Time limitation - HELD THAT:- Appellant have not shown any reason for ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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, Mumbai 400013 along with accrued interest thereon at the applicable rate under Section 75 thereof; ii. I impose the mandated penalty of ₹ 36,26,02,574/- (Rupees Thirty Six Crore Twenty Six Lakhs Two Thousand Five Hundred Seventy Four Only) under Section 78 of Chapter V of Finance Act, 1994 upon M/s HDFC Bank Limited Kamala Mills, Trade World, C Wing, 10th Floor, Senapati Bapat Marg, Lower Parel, Mumbai 400013; and iii. I impose a penalty of ₹ 5000/- (Rupees Five Thousand Only) under Section 77(2) of Chapter V of Finance Act, 1994 for each infraction committed by M/s HDFC Bank Limited Kamala Mills, Trade World, C Wing, 10th Floor, Senapati Bapat Marg, Lower Parel, Mumbai 400013 under Section 70 of Chapter V of Finance Act, 1994 by filing incorrect ST-3 returns for the period from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 amount received as interest at least one of the condition should be satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty can be attributed to them {Punjab Laminates Pvt Ltd [2006 (7) SCC 431], Pahwa Chemicals Private Ltd [2005 (189) ELT 257 (SC)], Anand Nishikawa Co Ltd [2005 (188) ELT 149 (SC)]} 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)] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account and not asset as per RBI report vide memo No DBR. BP No 3465/21.07/001/2015- 16 dated 8.09.2015. Auto loan under subvention scheme is provided under a fixed rate of interest. The upfront payment made by manufacturer/ dealer is accepted by them towards interest against loan amount. It is for this reason, that the Bank is available to give the benefit of lower rate of interest to its customers. (at times 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion deed executed with the customer, though for the customer the price of vehicle remains the same. Comparison sought with farm subsidy by referring to Finance Minister speech is totally irrelevant. Appellants contention that they are showing subvention income against interest on advance hence should not be subjected to tax. They have vehemently submitted that the amount charge was equivalent to the amount foregone, by them, by extending the loan to customer of vehicle manufacturer/ dealer, as interest, by providing loan at lower 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or services, which are inputs for the client; or [Explanation - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, inputs means all goods or services intended for use by the client;] (v) production or processing of goods for, or on behalf of the client; or (vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans and vehicle manufacturer/ dealer are selling their vehicles. Both of them are interested in promoting their business independently. Commissioner has in para 15 to 18 his order considered the above submissions and recorded- 15. The arrangement, which has been noted is not in dispute. A question, which comes to mind is if the income is in the nature of interest then why is it recorded in the books of accounts of the noticee as subvention charges. The noticee, in consultation with the manufacturer or the vehicle dealers, prepares vehicle financing special schemes, which provide for no interest or very low interest. So, the noticee receives either no interest or very low interest, which can be accounted as interest income in the books of accounts of noticee. The noticee receives subvention income out of the commission, which is paid by the noticee to the manufacturer or the car dealers. The noticee says 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 q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme by a very crude example of two persons say A and B, one having a business of selling fabric and other having the business of tailoring. Both enter into agreement that, to the customers of A, who purchase fabric from A, and on recommendation of A, B will do tailoring at 50% of the normal tailoring charges. For providing the tailoring facilities to the customers of A at reduced rate, A will pay B certain amount. The question akin to the issue under consideration is whether B, is providing any services to A, by providing tailoring facility to the customers of A at reduced rate. In normal course of business both A and B both being independent entities are interested in promoting their business. However by providing the tailoring facility to the customers of A at rates lower than the rates at which B normally provides to independent customers, B definitely promotes the sale of fabric by A. B can always argue that in process they have promoted their business. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y upon the decision of the European Court, for Indian cases. The appellants also relied upon the decision of Hon ble High Court of Madras in the case of Edupuganti Pitchayya Ors v. Gonuguntla Venkata Ranga Row, dt. 20-10-43. In that case, Hon ble High Court took a view that out of the amount collected over and above the principal is in the nature of interest and it denotes consideration of or otherwise in respect of loan or retention by one party of some of money or other property belonging to another. This was submitted to support the view that prepayment charges and reset charges are nothing but interest. In this case, prepayment/reset charges are not in the nature of interest at all but is in the nature of charge for early closure of loan/resetting of loan and is relatable to lending since it either closes the loan or charges the terms and hence it cannot be equated with interest at all. It has to be noted that in the case of prepayment, interest is collected separately till 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime. We have followed the said decision in case Bank of Baroda [Final Order No A/86424/2019 dated 21.08.2019] and in case of LIC Housing Finance Ltd [Final Order No. A/86425- 86428/2019 dated 21.08.2019]. Thus we are not in position to agree with the argument of the appellants by which they contend that these subvention charges are nothing but interest on advances and hence exempt from payment of service tax. 5.6 We also find that issue under consideration has earlier been adjudged by the tribunal in the following cases:- Speed Finance Service [2017-TIOL-2548-CESTAT-DEL] 5. We have heard both sides and perused the records. The fact is not under dispute that the appellant had received the full commission amount from the bank for providing the business auxiliary service and that the subvention charges were debited by the bank from the appellant s account in order to pay the same to its customers. Such subvention charges collected are part of the commission, which falls under the taxable category of business auxiliary service . In this context, the Tribunal in the case of Commissioner of Service Tax, Mumbai vs. J.M.D. Marketing Pvt. Ltd. 2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on amount during the disputed period were reflected in the periodical ST-3 returns filed by the appellant. He also submitted that based on the audit report, the Department had issued the SCN on 16.01.2008 and based on same set of facts, another SCN was issued on 23.10.2009, which is clearly barred by limitation of time, having been issued after one year from the date of knowledge. Thus, he submits that the allegation of separation of facts with intent to evade payment of service tax cannot be leveled against the appellant and accordingly, the adjudged demand cannot be sustained. To support his stand that the SCN is barred by limitation of time, the ld. Advocate has relied on the judgment of Supreme Court in the case of P and B Pharmaceuticals Pvt. Ltd. Vs. Collector, reported in 2003 (153) E.L.T. 14 (SC.); ECE Industries Ltd. Vs. Commissioner, reported in 2004 (164) E.L.T., 236 (S.C.); Hyderabad Polymers Pvt. Ltd. Vs. Commissioner, reported in 2004 (166) E.L.T. 151 (S.C.); and Nizam Sugar Factory Vs. Collector of Central Excise, reported in 2006 (197) E.L.T. 465 (S.C.). Toyota Lakozy Pvt Ltd [2017 (52) STR 299 (T-Mum)] 7. Appellant, admittedly, assists cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready settled by the decision of the Tribunal in the case of CCE, Jaipur-I v. Chambal Motors (P) Ltd. reported in 2008 (9) S.T.R. 275. The Tribunal held as under :- 6. It is obvious from the reasoning adopted by the Commissioner (Appeals) that he has proceeded on totally an erroneous footing that, a bank cannot avail of Business Auxiliary Services as a client. From the nature of agreements on record including the franchisee agreement in the third appeal, it is clear that the assessees were, under an agreement with the bank had undertaken to provide service in relation to promotion or marketing of the Banking and Financial Services provided by the banks. The banks were providing services under the category Banking and Other Financial Services falling in Clause (12) of Section 65. In relation to those services, the respondent-assessees were providing services for promotion or marketing of the banking and other financial services provided by the banks. The banks were, therefore, their clients being recipient of such services from the respondents. It has come in evidence that the respondents were required to obtain loan applications from their customers who desired t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest income. The interest does not arise on account of any loan simplicitor. They recover from the vehicle purchaser, finance charges on the principal amount. Where a prospective purchaser is unwilling to pay at the said rate, the dealers in order to increase their sales, agree to bear part of these finance charges. It is clear that the real cost/ value of the services provided by the assessee is worth 9% of the principal amount. Therefore, the entire amount shall in toto form' the gross amount charged' for, the purpose of determining taxable value under Section 67, even if the dealer undertakes to pay part of the financial charges on behalf of the vehicle purchaser. In view of the discussions as above we hold the demand of service tax in under the category of Business Auxiliary Services on the amounts received as subvention income by the Appellants on merits. 5.7 Limitation and Penalties : Appellant have contested the demand on the ground of limitation. They have contended that they were under the bonafide belief that no service tax was payable in respect of the subvention income and also the issue was not free from doubts and was purely an interpret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V of the Finance Act, 1994 would not occur. We are unable to agree with the contentions raised by the appellants on this count. They have not shown any reason for entertaining the so called bonafide belief that service tax was not payable in respect of the subvention income. On the contrary the fact is that they were availing the CENVAT credit in respect of input services received for providing these services. Appellants have and could not have denied the fact that they had availed CENVAT Credit in respect of the advertisements jointly issued by them along with the vehicle manufacturers/ dealers for the purpose of special schemes, offering interest at nil/ lower rate. Once they were availing the CENVAT Credit in respect of the input services for the output service provided, they cannot claim that they were under the bonafide belief that no service tax was payable in respect of the output services. The act of availing the CENVAT Credit defies the claim made by the appellant stating that issue was interpretational issue. Even if it was once they have availed the CENVAT Credit in respect of input services, the natural consequence is to pay service tax on the output service ..... X X X X Extracts X X X X X X X X Extracts X X X X
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