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HIGH COURT OF JUDICATURE AT BOMBAY
UJJAL BHUYAN & MILIND N. JADHAV, JJ.
Commissioner of CGST & Central Excise – Appellant
Versus
Shriram Transport Finance Company Ltd. – Respondents
Central Excise Appeal No. 189 of 2019
Decided On : 12-02-2021
Service Tax - Financial Leasing Services - Central Excise Act, 1994 - Section 35G - Summary of Acts and Sections: Central Excise Act, 1994 - Section 35G, Section 73(1), Section 75, Section 76, Section 77, Section 78, Section 67, Section 65(12)(a)(i), Section 65(10), Section 65(105)(zm), Section 66 - The court analyzed the provisions of the Central Excise Act, 1994, particularly Section 35G, Section 73(1), Section 75, Section 76, Section 77, Section 78, Section 67, Section 65(12)(a)(i), Section 65(10), Section 65(105)(zm), and Section 66. The court discussed the definition of 'banking and other financial services' and 'taxable service', the charge of service tax, and the valuation of taxable services for charging service tax. The court also referred to circulars and guidelines issued by the Reserve Bank of India (RBI) and the Institute of Chartered Accountants of India (ICAI) to establish the regulatory framework for non-banking financial companies (NBFCs) engaged in equipment leasing and hire-purchase finance.
Fact of the Case:
The respondent, a non-banking financial company (NBFC), was engaged in providing services of lending, hire purchase, and financial leasing of commercial vehicles. The Commissioner of Service Tax, Mumbai issued show cause notices demanding service tax for the period 2003-04 to 2009-10. The Commissioner confirmed the demand partially, and the respondent filed an appeal before the Customs, Excise, & Service Tax Appellate Tribunal (CESTAT), Mumbai. CESTAT partially allowed the appeal, setting aside the demand for the period prior to 01.03.2006 and confirming the demand for subsequent periods along with a penalty under Section 76 of the Finance Act. The appellant challenged the judgment and order of CESTAT, and the Civil Appeal is pending for decision.
Finding of the Court:
The court found that the respondent's activity of hire purchase and financing lease of commercial vehicles falls under the definition of 'banking and other financial services' and is taxable from 16.07.2001. The court held that the consideration for the taxable service rendered by the respondent is received as equated monthly installments (EMI), which is then assigned as principal and interest. The court concluded that the interest on loan advanced stands excluded from the purview of taxable services, and the recovery of service tax on interest for the period prior to 01.03.2006 is without authority of law. The court dismissed the appeal, finding no error or infirmity in the view taken by CESTAT.
Issues: The issues involved in the case were whether the activity of the respondent is covered in the definition of taxable service of 'Banking and other Financial Services', whether the recovery of service tax on interest for the period prior to 01.03.2006 is without authority of law, and whether the appellant's challenge to the judgment and order of CESTAT is valid.
Ratio Decidendi: The court's ratio decidendi was that the respondent's activity of hire purchase and financing lease of commercial vehicles falls under the definition of 'banking and other financial services' and is taxable from 16.07.2001. The court also held that the interest on loan advanced stands excluded from the purview of taxable services, and the recovery of service tax on interest for the period prior to 01.03.2006 is without authority of law.
Final Decision: The court dismissed the appeal, finding no error or infirmity in the view taken by CESTAT. However, there shall be no order as to cost.
JUDGMENT :
Milind N. Jadhav, J.
1. Heard Mr. Vijay Kantharia along with Mr. D.B. Deshmukh, Advocates for the appellant and Ms. Padmavati Patil along with Mr. Kiran Chavan, Advocates for the respondent.
2. This appeal has been filed by the Commissioner of Central Goods and Services Tax under the provisions of Section 35G of the Central Excise Act, 1994 (briefly referred to as "the said Act") to challenge the order No. A/86601/2018 dated 29.05.2018 passed by the Customs, Excise, & Service Tax Appellate Tribunal (briefly referred to as "the CESTAT"), West Zonal Bench, Mumbai in Appeal No. ST/86027/14 arising out of Order-in-Original No. 119-121/STC-1/SKS/13-14 dated 24.12.2013 passed by the Commissioner of Service Tax, Mumbai - I.
3. The appellant has preferred the appeal on the following substantial questions of law:
“a. Whether the Hon’ble Tribunal was correct in holding that the activity is not taxable prior to 01.03.2006 as there was no mechanism provided for bifurcation of value of service from the interest amount?
b. Whether the Hon’ble Tribunal was correct in holding that the period prior to 01.03.2006 is not taxable in the absence of mechanism for bifurcation of Service Income as provided in Notification No.4/2006 – ST?
c. Whether the Hon’ble CESTAT was correct in holding that the period from 01.03.2006 to 31.03.2008 as regular period and imposed penalty u/s 76 when the period from 01.03.2006 to 31.03.2008 is part period of first demand notice?”
3.1. Today, learned counsel for the appellant has restricted the challenge and modified the substantial question of law as under:-
“Whether for the period prior to 01.03.2006, service tax is recoverable on entire interest component collected as equated monthly installments on transactions relating to "Financial Leasing Services including equipment leasing and hire-purchase", in absence of any mechanism to bifurcate the processing or management charges"
4. Before we advert to the submissions made by the learned counsel for the parties, it will be apposite to refer to the relevant facts briefly.
4.1. Respondent M/s. Shriram Transport Finance Company Limited i.e. the assessee having centralised registration office at Mumbai is engaged in the activity of providing services of lending, hire purchase, financial leasing of commercial vehicles under the head “Banking and other Financial Services” as defined under the provisions of Section 65(12)(a)(i) of Chapter V of the Finance Act, 1994 (briefly referred to as “the Finance Act”). During the course of audit it was noticed that the assessee provided services of hire purchase and financial leasing of commercial vehicles but did not pay service tax on the income earned on the said services to the department. Total amount of service tax on the income not paid was worked out to Rs.5583.05 lakhs for the period 2003-04 to 2007-08. One of the group company M/s. Shriram Investments Limited was also engaged in similar activities during the period 2003-04 to 2004- 05 and had not paid service tax to the tune of Rs.2094.45 lakhs on the income earned by the company. M/s. Shriram Investments Limited was merged with the respondent company w.e.f. 01.04.2005 by virtue of order dated 25.11.2005 passed by this Court in Company Petition No.192 of 2005.
4.2. (i) For the period 2003-04 to 2007-08 combined show cause notice F.No.V/STC/DN.I/GR.II/Audit/STFL/2008 dated 16.10.2008 was issued by the Commissioner of Service Tax, Mumbai demanding service tax of Rs.7678.00 lakhs under proviso to Section 73(1) of the Finance Act along with interest under Section 75 and penalty under Sections 76, 77 and 78 of the said Act;
(ii) For the period 2008-09 show cause notice No. V/STC/DN.I/GR.II/Audit/STFL/2008 dated 06.10.2009 was issued demanding service tax of Rs.53.74 lakhs; and
(iii) For the period 2009-10, show cause notice No. V/STC/DN.II/GR.II/Audit/STFL/2008 dated 02.08.2010 was issued demanding service tax of Rs.43.26 lakhs.
4.3. The adjudicating authority i.e. Commissioner of
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