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ST - Services of financial leasing provided to clients - Taxable event occurs when hire-purchase contract is entered - ST to be paid at rate prevailing at time of entering lease agreements & not at time of receipt of EMI: CESTAT

By TIOL News Service

MUMBAI, MAY 19, 2014: THE appellant is a lease finance company and provided services of financial leasing under the category of ‘Banking and Finance' services.  The lower authorities have confirmed a demand of Service Tax of Rs.18.75 lakhs on the lease agreements entered by the applicant with their clients between 16.7.2001 & 13.5.2003 and 14.5.2003 to 10.9.2004 on the ground that the applicant had not discharged the correct service tax liability.  The contention of the Revenue is that the applicant has discharged the service tax liability @5% and 8%, whereas they are required to pay the service tax @8% and 10.2% (including EC) prevailing at the time of receipt of the EMI.

While seeking stay the applicant submitted that the services are provided on the date of providing the assets on Hire purchase or Financial lease, which normally is the date of entering into the agreement with the hirer or lessee as the case may be; that entire terms of contract are directed at the time of entering into the contract; that they collected the EMI payable by the customers and also included the liability of service tax; that rate of service tax during the agreement was only 5% to 8% and they have paid the service tax as per the agreement entered into by them. Reliance is also placed on final order of the Tribunal in the case of M/s Art Leasing Ltd. vs. CCE, Cochin - 2007-TIOL-1493-CESTAT-BANG.

The Bench had observed that the case law cited by the applicant ‘seemed' to cover the issue in favour of the applicant and accordingly granted a stay in the matter.

We reported that order as 2008-TIOL-1816-CESTAT-MUM.

The appeal was heard recently.

And the CESTAT held that the issue is fully settled by the order of the Tribunal in the case of Art Leasing Ltd. inasmuch as -

+ When the Hire purchase contract is entered, the taxable event occurs.

+ The installment payments are only obligations of the hirer.

+ The finding that the appellant continues to provide service during the payment of installments is not correct.

+ Therefore, the rate of Service Tax will be the rate prevailing on the date on which the contract is entered into.

In fine, the order of the CCE, Pune-III was set aside and the appeal was allowed.

In passing: The wait is over.

(See 2014-TIOL-794-CESTAT-MUM)


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