BY TIOL News Service

NEW DELHI, DEC 09, 2015: THE appellant is manufacture of motor vehicles and also provided financial leasing services but did not pay service tax resulting in demand of the same. The appellant contended that the period of the impugned demand is from 2003-04 to 2006-07 and all the hire purchase agreements were entered into prior to 16.08.2002 and the appellant was a corporate but not a banking company or a financial institution or a nonbanking financial company and therefore financial leasing service in the form of hire purchase rendered by it was not liable to service tax under section 65 (10)/(105) (zm)/(zp) ibid.

The Departmental Representative, on the other hand, argued that (i) the hire purchase service rendered by a body corporate was covered under the definition of BOFS and therefore the demand in respect thereto is sustainable. (ii) Even if it is held that no service tax is payable in respect of hire purchase agreements entered into prior to 16.08.2002, if the delivery of the vehicle under the agreements took place after 16.08.2002, the service tax would be leviable as the date of rendition of service will be the date of delivery of the vehicle under hire purchase agreements.

After hearing both sides, the Tribunal held:

+ As per the provisions of Section 65(10), to be covered under BOFS prior to 16.08.2002 the hire purchase service had to be rendered by such body corporate which was a banking company or a financial institution including a non-banking financial company.

+ The appellant does not qualify to be called non-banking financial company and it is established that the appellant is not a banking company nor a financial institution including a non-banking financial company and therefore the service rendered by it prior to 16.08.2002 was not covered under BOFS because prior to that date financial leasing services including equipment leasing and hire purchase by a body corporate were covered under BOFS only if such body corporate satisfied the requirement of being a banking company or a financial institution including a non-banking financial company.

+ However, it is held that service tax is leviable under BOFS in those cases where even if the hire purchase agreements were entered into prior to 16.08.2002, the delivery of vehicles took place on or after 16.08.2002.

With regard to other part of demand, i.e., demand of service tax on interest component on loans, the Tribunal held - The issue whether the income from interest on loans was includible in the assessable value for the purpose of charging service tax is no longer res integra and has been decided in favour of the appellant.

Accordingly, the Tribunal confirmed demand only on hire charges in case where the delivery of the vehicles took place on or after 16.08.2002.

(See 2015-TIOL-2625-CESTAT-DEL)