TMI Blog2008 (12) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... eemed sale by way of exemption. - 31710 OF 2001 - - - Dated:- 17-12-2008 - C.N. RAMACHANDRAN NAIR AND HARUN-UL-RASHID, JJ. R. Ramadas for the Petitioner. M. Ravindran and John Varghese for the Respondent. JUDGMENT C.N. Ramachandran Nair, J. - The first petitioner, an association of non-banking financial companies, and petitioners 2 and 3 its members, have filed this Writ Petition challenging the constitutional validity of section 137 of the Finance Act, 2001 by which service tax is introduced on banking and other financial services which includes equipment leasing and hire purchase . The provisions providing for service tax on equipment leasing and hire-purchase transactions are introduced by amending the Finance Act, 1994. The relevant definition clauses introduced therein are extracted hereunder for easy reference: Section 65(12) 'banking and other financial services' 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 or commercial concern namely:- (i) financial leasing services including equipment leasing and hire-purchase. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners we have heard senior counsel Sri Aravind P. Dattar, appearing for the petitioners, and Addl. Solicitor General of India from Chennai, Sri M. Ravindran, appearing along with Sri John Varghese on behalf of respondents. 4. The first ground raised by the petitioners to challenge the impugned provisions is that Parliament has no authority to legislate on hire-purchase and leasing transactions which are subjects left for levy of sales tax by the States under Entry 54 of List II of VIIth Schedule to the Constitution of India. According to petitioners, after the 46 th Amendment to the Constitution introducing clauses 29A(c) and (d) to Article 366, States are authorised to provide for sales tax among other things on hire-purchase and leasing transactions. They have also pointed out that, as a follow up measure, all States including the State of Kerala, introduced provisions in the respective Sales Tax Acts authorising levy of sales tax on hire-purchase and leasing transactions. Besides allegation of want of legislative competence for the Parliament to introduce service tax on hire-purchase and leasing transactions, petitioners are also challenging the provisions on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is whether the above constitutional provisions and the follow up State legislation take away the authority of Parliament to levy service tax on taxable service charges on hire-purchase and leasing transactions. Petitioners 2 and 3 and other members of the first petitioner are only engaged in banking and financial services and are not dealers in goods. Admittedly, hire purchase is for vehicles and vehicles for this purpose are purchased from manufacturers/dealers after agreement between the Financier and the Hirer under which price in part or full is advanced by the Financier as a loan under agreement between them. In fact the vehicle is purchased in the name of the Hirer and in the certificate of registration obtained under the Motor Vehicles Act, hire purchase/hypothecation in favour of the Financier is endorsed. In other words, besides collateral security, if any, obtained by the Financier, loan advanced is secured by creating a charge on the vehicle which is through endorsement of hypothecation in favour of the Financier in the RC book of the vehicle. Even though there used to be the practice of Financier purchasing the vehicle in their name and then giving the vehicle on hire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred above authorising sales tax does not stand in the way of Parliament levying service tax on taxable service charges received in respect of hire-purchase transactions by the Financiers. Since interest is excluded through notification, the incidence of service tax does not fall on interest on loan advanced. 6. The transaction of leasing of goods between the Financier and the Hirer is almost similar to the hire-purchase agreement. In the case of leasing of goods, machinery or other articles required for the lessee are identified by them and in fact they fix terms of purchase with the manufacturers/dealers. Thereafter they approach the Financier who advances loan under lease agreement executed between the Financier and the lessee. After finance is arranged, supplier raises invoice on the Financier and delivers the goods. While the Financier continues to be the owner of the goods, the lessee enjoys the right to use goods and as and when instalments of loan and other charges are paid, lessee either becomes owner or has option to purchase the goods by paying balance price. Here again, if the purchase of leased article has suffered tax under Sales Tax Laws of the State, then n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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