The Chandigarh bench of Customs, Excise And Service Tax Appellate Tribunal (CESTAT) has held that the demand of service tax under financial leasing without considering the nature of the transaction is invalid.
M/s Xerox India Ltd, the appellant is engaged in the manufacturing of photocopying machines, and accessories and has got centralized service tax registration from 04.08.2003 and for the category of “Maintenance and Repair” and “Banking and other financial” services from 04.11.2004. During the Audit conducted by the department, it was noticed that the appellant apart from the manufacturing is also involved in Repairs and Maintenance service/lease and equipment finance for their products.
The appellant has shown interest income under the head “Lease and Equipment Finance Income” in their annual report/balance sheets pertaining to the periods 2002-03 and 2004-05. However, they obtained registration for Banking and Financial service “Lease and Equipment Finance w.e.f. 04.11.2004 whereas service tax on leasing and equipment financing service by body corporate is leviable to service tax w.e.f. 16.08.2002. After several rounds of audit objections and counter replies a show cause notice dated 22.10.2007 was issued to the appellant proposing to demand service tax of Rs. 65,10,497/- under Banking and Financial Services (“BOFS”) on the amounts collected as “interest income-rental”, “interest income-funding”, finance income-income-facility management during the relevant period.
After following the due process, the Commissioner vide the impugned order confirmed the demand along with interest and penalty after invoking the extended period of limitation.
It was submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. She further submits that the appellant is not a “body corporate” engaged in providing banking services.
It was argued that the appellant is not a body corporate engaged in providing banking services, therefore, there is no liability to discharge service tax under BOFS. She also relied upon the circular dated 04.07.2006, wherein it is clarified that the word „any other person‟ in Section 65(105)(zm), has to be read by applying the principle of ejusdem generis with the preceding words.
Service tax under banking and other financial services has been demanded from the appellant on the lease and finance income received in respect of the contract entered into before 16.08.2002. It is pertinent to note that financial leasing services provided by the appellant i.e. body corporate are taxable only from 16.08.2002 whereas in the present case, service tax is sought to be demanded based on the agreement before 16.08.2002.
The appellant received rent for renting equipment, further the perusal of sample copies of agreements will indicate that the appellant is only providing its equipment on a rent basis to its customers and is not providing any financial leasing services. These services are entirely different from the service of financial leasing for the levy of service tax.
The appellant entered into an equipment finance agreement with the customers which is on record whereby the purchaser could either make one-time down payment for purchasing the equipment or could make the payment in installments as agreed between them. The ownership of the machine was not transferred to the customer in the beginning and the customer was to make payment in specified installments. The arrangement of sale and purchase cannot be subjected to service tax under financial leasing as has been done in the impugned order.
Further, as per Section 67 of the act, the interest income on loans is excluded from the value to calculate service tax on any service and circular no. 80/10/2004-S.T. dated 17.09.2004 reiterates the same position. Further, as regards the finance income facility management, it is seen that the amount is received by the appellant for providing printing/copying equipment to the customers along with the operator at the premises of customers and the customer paid to the appellant per impression charges based on the usage of the machine during a month.
The appellant has also produced copies of documents management service agreement entered into with the buyer to show the real nature of the transaction. Further, we also find that w.e.f. 01.05.2006 the appellant is paying service tax on facility management under business support service which has been accepted by the department vide order no. 10/SIS/CST/(ADJ)/2010 dated 30.11.2010.
A two-member bench comprising Mr S S Garg, Member (Judicial) and Mr P Anjani Kumar, Member (Technical) held that for facility management, demanding service tax under financial leasing during the relevant period is not sustainable. It was found that an amount of Rs. 9,37,76,673/- has been received by the appellant for providing financial leasing service without taking into consideration the actual nature of the transaction. Hence, the demand is liable to be set aside and we accordingly do so.
The court found that the appellant has never suppressed or misrepresented any fact relating to the service provided. The appellant is duly registered with the service tax authorities under banking and financial service and paid service tax of Rs. 2,38,161/- along with interest of Rs. 27,370/- under the Amnesty Scheme, 2004. It shows that all the facts were in the knowledge of the department w.e.f. 2004 i.e. the appellant got itself registered with the service tax authorities under the banking and financial services and paid service tax on agreements entered into after 16.08.2002.
While allowing the appeal, the CESTAT set aside the appeal.
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