M/S. Eicher Motors Ltd vs C.C.E., Indore

1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3. Whether Lordships wish to see the fair copy of the order? Seen 4. Whether order is to be circulated to the Department Authorities? Yes

Appeal No.ST/186/2009-CU[DB]

[Arising out of Order-in-Original No.25/COMMR/ST/IND/2008, dated 17.12.2008 passed by the C.C.E., Indore]

M/s. Eicher Motors Ltd. Appellant

Vs.

C.C.E., Indore Respondent

Appearance

Mr.BL Narasimhan, Advocate - for the appellant

Mr. Amresh Jain, DR

Ms. Suchitra Sharma, DR - for the respondent

CORAM: Honble Justice G. Raghuram, President

Honble Mr. R.K. Singh, Member (Technical)

Final Order No.53147/2015, dated 04.09.2015

Per Mr. R.K. Singh :

Appeal has been filed against order and original dated 17.12.2008 in terms of which service tax demand of Rs.51,14,445/- along with interest and penalty (under Section 78) was confirmed under Banking and Other Financial Services (BOFS) [section 65 (12)/(105) (zm) / (zp) of the Finance Act, 1994]. The appellant is manufacture of motor vehicles and also provided financial leasing services but did not pay service tax resulting in the impugned order.

2. The appellant has contended that (i) the demand comprises two components; Rs. 39 lakhs relates to the hire purchase income and Rs.12,14,445/- pertains to the service tax leviable on the amount of interest earned by the appellant on the loans granted by it. The period of the impugned demand is from 200304 to 200607. (ii) 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. (iii) As regards the service tax charged on interest income it stated that interest does not reflect the value of the service rendered as was clarified by explanation clause (viii) added in 2004 to Explanation (1) to section 67 of the Finance Act, 1994. (iv) It cited the judgement of CESTAT in the case of Art Leasing Ltd. Vs. CCE, Cochin [2007 (8) SDR 162 (Tri-Bang)] and others in support of the proposition that service tax under BOFS was not chargeable on such hire purchase agreements which were entered into prior to the date on which the service became taxable even if the instalments were paid subsequently. The levy of Service Tax on BOFS was introduced in 2001. (v) As regards the service tax confirmed on the amount of interest, it cited the CBEC circular No. 80/10/2004ST, dated 17.09.2004 and referred to Explanation 1 to section 67 ibid and added that it being a clarificatory, the Explanation would have retrospective effect as has been held in the case of M.P. Laghu Udhyog Nigam Ltd Vs. CCE, Bhopal [2015 (37) STR 308 (Tri.-Del)].

3. Ld. 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 and ld. advocate for the appellant conceded this point. (iii) As regards the service tax confirmed on the amount of interest earned on the loans sanctioned, the provision for exclusion of interest from the value of service was incorporated in section 67 only in 2004 and therefore prior thereto, the service tax was leviable on the interest income.

4. We have considered the contentions of both sides. As regards the impugned demand amounting to Rs.39 lakhs, the basic issue to be decided is whether the hire purchase service rendered by the appellant prior to 16.08.2002 was covered under the scope of BOFS as defined under section (65) (10)/(12) ibid. The relevant legal provisions, as introduced in 2001, are reproduced as under:-

(10) banking and other financial services means, the following services provided by a banking company or a financial institution including a non-banking financial company, namely :

(i) financial leasing services including equipment leasing and hire-purchase by a body corporate;

(ii) credit card services;

(iii) merchant banking services;

(iv) securities and foreign exchange (forex) broking;

(v) asset management including portfolio management, all forms of fund management, pension fund management, custodial depository and trust services, but does not include cash management;

(vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; and

(vii) provision and transfer of information and data processing;

Section 65(105)(zm)

to a customer, by a banking company or a financial institution including a non-banking financial company, in relation to banking and other financial services;

These provisions were amended in 2002. The provisions applicable from 16.08.2002 are reproduced as under:-

(11) banking and other financial services means the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate, namely :-

(i) financial leasing services including equipment leasing and hire-purchase by a body corporate;

(ii) credit card services;

(iii) merchant banking services;

(iv) securities and foreign exchange (forex) broking;

(v) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, but does not include cash management;

(vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; and

(vii) provision and transfer of information and data processing;

Section 65(105)(zm)

to a customer, by a banking company or a financial institution including a non-banking financial company, in relation to banking and other financial services;

Section 65(105)(zp)

to a customer, by a body corporate other than the body corporate referred to in sub-clause (zm), in relation to banking and other financial services;

The provisions as amended in and applicable from 2003 are reproduced as under:-

(12) banking and other financial service 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, namely :-

(i) financial leasing services including equipment leasing and hire-purchase by a body corporate;

(ii) credit card services;

(iii) merchant banking services;

(iv) securities and foreign exchange (forex) broking;

(v) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, but does not include cash management;

(vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; and

(vii) provision and transfer of information and data processing;

(b) foreign exchange broking provided by a foreign exchange broker other than those covered under sub-clause (a);

Section 65(105)(zm)

to a customer, by a banking company or a financial institution including a non-banking financial company, in relation to banking and other financial services;

Section 65(105)(zp)

to a customer, by a body corporate other than the body corporate referred to in sub-clause (zm), in relation to banking and other financial services;

It is as evident that 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. As per section 65 (11) ibid banking company has the meaning assigned to it in clause (a) of section 45 A of the Reserve Bank of India Act, 1934 which is reproduced below:-

S. 45A (a) banking company means a banking company as defined in section 5 of the 1[Banking Regulation Act, 1949] (10 of 1949) and includes the State Bank of India, 2[any subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), any corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), and any other financial institution notified by the Central Government in this behalf];

Explanation: Any company ........

As per section 5 of the Banking Regulation Act, 1949  company means any company which transacts the business of banking in India. Banking [as per Section 5(b) of Banking Regulation Act, 1949] means the accepting for the purpose of lending or investment ,of deposits of money from the public, repayable on demand or otherwise and withdraw by cheque, draft order or otherwise.

From the foregoing, there can be no dispute that the appellant is not a banking company.

5. Financial Institution as per Section 65(45) has a meaning assigned to it in clause (c) of Section 45I of Reserve Bank of India Act, 1934. Section 45I(c) of the RBI Act inter alia makes it expressly clear that financial institution does not include any institution, which carries on as its principal business (a) agricultural operations, (aa) industrial activity.....

Thus the appellant does not qualify to be called a financial institution as industrial activity is its principal business. Similarly, as per section 45I (f) of the Reserve Bank of India Act, 1934 non-banking financial company means  (i) a financial institution which is a company; (ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; (iii) such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify;

Thus, the appellant does not qualify to be called non-banking financial company. So, 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.

6. It has been asserted by the appellant that all the hire purchase agreements in respect of which the demand has been confirmed under BOFS were entered into prior to 16.08.2002 and that this assertion was made even before the primary adjudicating authority and has not been contested in the primary adjudication order. CBEC vide circular No.B11/1/2001TRU, dated 09.07.2001 issued at the time of introduction of levy of service tax BOFS in para 2.1.4 clarified that the hire purchase agreements entered into prior to the imposition of levy i.e. 16.07.2001 will not be chargeable to service tax provided the goods are also delivered prior to 16.07.2001. CBEC vide its circular No.B11/1/2002-TRU, dated 01.08.2002 classified as under:-

5.1 The definition of banking and other financial service has been amended to extend the levy of service tax to body corporate other than those already specified earlier, providing specified services. The levy on body corporate, which have come into tax net as a consequence to this amendment, will be effective only from 16-8-2002. It may be noted that as a result of this amendment, all body corporate providing the specified banking and other financial service will come under the tax net. Earlier, it was clarified vide Ministrys instructions F. No. B-11/1/2001, dated 9-7-2001 that asset management companies are not NBFC. Hence they would not come under the purview of service tax. This instruction stands amended now as Asset Management Companies being body corporate will henceforth be liable to pay service tax. Similarly all merchant bankers, portfolio managers, foreign exchange brokers etc who are body corporate will henceforth be liable to pay service tax.

From the foregoing, it becomes evident that in respect of hire purchase agreements entered into by the appellant prior to 16.08.2002 where the vehicles were also delivered prior to 16.08.2002 were not liable to service tax under BOFS. Ld. advocate for the appellant fairly conceded that (i) while all the hire purchase agreements in respect of which the service tax demand of Rs.39 lakhs has been confirmed were entered prior to 16.08.2002, but he could not confirm whether all the vehicles thereunder were also delivered prior to 16.08.2002 (ii) in respect of such hire purchase agreements where the vehicles were delivered on or after 16.08.2002 the service tax under BOFS would be leviable and for that purpose the case may have to be remanded to the primary adjudicating authority for verification and computation. In the case of Art Leasing Ltd Vs. CCE, Cochin (Supra) CESTAT held as under:-

5.?The Banking and Financial Services came under the Service tax net w.e.f 16-7-2001. At that time, CBEC issued clarification to the effect that in respect of Hire Purchase Contracts entered prior to 16-7-2001 and instalments of which were received after 16-7-2001, there is no Service tax liability. In our view, the same logic is applicable to the present case also. When the Hire Purchase contract is entered, the taxable event occurs. We agree with the appellants that the instalment payments are only obligations of the hirer. The finding of the Commissioner (Appeals) 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. Consequently, the demand of differential amount applying the higher rate, which came into effect from 14-5-2003, will not be applicable in respect of the contracts entered prior to that date. Hence, we set aside the impugned order and allow the appeal with consequential relief, if any.

To sum up, 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.

7. Coming to the other component demand amounting to Rs.12,14,445/-, it is seen that clause (viii) to Explanation 1 to section 67 was added with w.e.f. 10.09.2004. The adjudicating authority has taken a view that CBEC circular 80/10/2004ST dated 17.09.2004 clarifying that the income which is in the nature of interest on loan would remain excluded from taxable value will only have prospective effect. We do not find any basis for this assertion as circulars are only clarificatory and do not (also cannot) lay down mandatory provisions. The appellant has contended that by adding the said clause (viii) to the Explanation 1 to Section 67, it was only clarified that interests on loans are not to be included in assessable value and therefore it has retrospective application. In the case of Thermax Ltd. Vs. CCE, Pune [2007 (8) STR 487 (Tri.-Mumb)] it was held with regard to the insertion of the said clause, that the insertion of the explanation has removed an anomaly that existed earlier and it should be treated as clarificatory in nature i.e. w.e.f. 16.08.2002. In the case of Karur Vysya bank Ltd. Vs. Commissioner [2015VIL68CESTATCHEST] CESTAT held the interest being a consideration for the liquidity forgone by the bank due to lending of the fund that is not brought within the purview of the Finance Act, 1994 for taxation in the absence of any consolidated service charges included in such interests receipt and discernible. It is thus evident that 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.

8. Ld. Departmental Representative contended that the appellant did not cooperate in the investigation and did not provide figures in spite of being asked to do so repeatedly and that it amounted to suppression of facts with intention to evade service tax. Although as is evident from the foregoing discussion, in the given circumstances in the ordinary course it may have been possible for an assessee to have bona fides belief about the non-leviability of service tax, the fact that the appellant did not provide the information in spite of being asked to do so several times evidentlytantamount to suppression of facts which as per Section 73 ibid is sufficient for invocation of extended period. We however need not dwell on this issue in greater detail as the impugned demand has not been found to be sustainable except to the extent of such hire purchase agreements where the delivery of vehicle took place after 16.08.2002 which the appellant has also conceded and this demand is likely to be very small. Penalty under Section 78 ibid will get attracted but in the wake of the decision of Gujarat High Court in the case of Ratnamani Metals & Tubes [2013-TIOL-1124-HC-AHM-CX], the appellant will be eligible for reduced (25%) of the mandatory penalty as this option had not been expressly given to the appellant earlier.

9. In the light of the foregoing analysis we pass the following order:-

(i) The demand of Rs.12,14,445/- confirmed on the amount of interest is set aside.

(ii) The demand relating to hire purchase agreements is also set aside except in respect of (i) such hire purchase agreements which were entered into on or after 16.08.2002 and (ii) such agreements entered prior to 16.08.2002 where delivery of the vehicles thereunder took place on or after 16.08.2002. (iii) The case is remanded to the primary adjudicating authority only for the purpose of computing the amount of demand as per sub-para (i) and (ii) above. The primary adjudicating authority shall compute such demand (after giving an opportunity to the appellant of being heard) and communicate the same to the appellant.

(iii) The amount of penalty under Section 78 of Finance Act, 1994 shall be equal to the demand so computed. However, amount of penalty shall be 25% of the demands so computed if the demand so computed along with interest and the reduced penalty (25% of the demand so computed) are paid within 30 days of the communication of the computed demand to the appellant.

10. The appeal be disposed of on the above terms.

(Justice G. Raghuram)

President

(R.K. Singh)

Member (Technical)

SSK

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