Ms. Jyoti Balasundaram, Vice President. - We have heard both sides on the appeal against the order of the Commissioner of Central Excise, Pune, by which he has confirmed service tax demand of Rs. 25,89,31,078 and education cess of Rs. 16,72,844 by holding that the appellants who were engaged in the business of hire purchase finance, were liable to service tax under section 65(10) of Chapter V of the Finance Act, 1994, which covers "banking and other financial services" which inter alia means "financial leasing services including equipment leasing and hire purchase by a body corporate", and penalty of equal amount under section 78, in addition to Rs. 200 per day during which failure to pay tax continues, and penalty of Rs. 1,000. The period of demand is 16-7-2001 to 31-3-2005.

2. The case of the department is that there is no difference between hire purchase which is admittedly covered under section 65(10), and hire purchase finance, as in both cases, the hirer enters into agreement with person who provides financial services to the hirer and in lieu of such services, the hirer pays certain amount as finance charges/hire purchase charges. We find on scrutiny of the agreement entered into between the hirer and the appellants that the hirer identifies the vehicle that he wishes to purchase from the manufacturer/dealer thereof, makes a part payment to the seller of the vehicle, applies to the appellants for financing the balance, and once the financing is sanctioned, the hirer enters into an agreement with the appellants and provides as security, right of repossession of the vehicle to the appellants in the event of his (hirer) default in payment of instalments to the appellants. The hirer becomes the owner of the vehicle - the title to the vehicle vests with the hirer who is a purchaser and it is in his name that the vehicle stands registered and insured and the appellants are the nominees. The appellants’ contention is that there is a fundamental difference between a hire purchase agreement and hire purchase finance agreement, namely that in the case of the former, the title to the goods remains with the hire purchase company which bails the goods to the hirer in return for periodical payments and the title to the goods is transferred to the customer/hirer only if he exercises the option to purchase the same on full payment to the hire-purchase company, while in the case of the latter, the title to the goods vests in the purchaser right from the beginning and the hire purchase finance company who has only a right to seize the goods for non-payment of the loan, is not the owner of the goods. This contention requires to be accepted in the light of the Apex Court’s decision in Sundaram Finance Ltd. v. State of Kerala [1966] 17 STC 489 in which the distinction between hire purchase and hire purchase financing has been brought out. Paragraphs 10 and 11 of the judgment which are relevant in this regard, are reproduced below:-

"10. A hire-purchase agreement is normally one under which an owner hires goods to another party called the hirer and further agrees that the hirer shall have an option to purchase the chattel when he has paid a certain sum, or when the hire-rental payments have reached the hire-purchase price stipulated in the agreement. But, there are variations when a financier is interposed between the owner of the goods and the customer. The agreement, ignoring variations of detail, broadly takes one or the other of two forms: (1) When the owner is unwilling to look to the purchaser of goods to recover the balance of the price, and the financier who pays the balance undertakes the recovery. In this form, goods are purchased by the financier from the dealer, and the financier obtains a hire-purchase agreement from the customer under which the letter becomes the owner of the goods on payment of all the instalments, of the stipulated hire and exercising his option to purchase the goods on payment of a nominal price. The deci