No Service Tax liability on hire purchase and Financial Lease Agreement entered prior to 16.07.2001, although Payments were received: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata Bench ruled that there is no service tax liability on hire purchase and financial lease agreement entered prior to 16.07.2001, although payments were received.

The assessee, M/s Paragon Finance Limited, being a non-banking financial company, was primarily engaged in financing operations predominantly lease and hire purchase for various assets. They have rendered such services from in long and received the service charges from their clients, but have not taken service tax registration.

Investigation was conducted wherein some documents were recovered and seized. During the course of scrutiny of documents, it was found that they are having certain agreements with their clients, some of which are titled as hire purchase agreement and lease and hypothecation and loan agreement.

That the activities undertaken by them fall under the category of lease and higher purchase classifiable under “Banking and Other Financial Service”. Further, it was alleged that during the period from 2002-03 to 2006-07, the assessee neither discharged the service tax liability nor they disclosed to the Department regarding their activities for providing taxable services under the category of “Banking & Other Financial Services” and wilfully suppressed the fact with the intention to evade payment of service tax.

The Counsel for the appellant submitted that income from hire purchase is credited to Hire Charges in the profit and loss account and there is no income from Hire Charges during the year 2003-2004 onwards except in respect of agreements entered into prior to 16.07.2001 and that in Ranchi Branch, on which service tax is admittedly paid. It is his submission that after 16.07.2001, no asset is given on hire charge basis.

The A.R. for the Revenue opposes the contentions of the Consultant for the assessee and submitted that the claim of the assessee is wrong that after 16.07.2001, they have entered into hire purchase and financial leasing transactions, which are liable to service tax under Banking and other Financial Services.

The Bench of Ashok Jindal, Judicial Member and K Anpazhakan, Technical Member observed that “We find that the service tax has been levied on Banking and Other Financial Services with effect from 16.07.2001. Prior to that, there was no leviable on Banking and Financial Institution Services. Therefore, the agreement, which has been entered by the assessee, with their clients prior to 16.07.2001, when no service tax was leviable, the liability of service tax does not arise against the assessee.”

“We hold that the agreement entered by the assessee prior to 16.07.2001, is notliable to be taxed although the assessee has received the payments later on.” The Tribunal noted.

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