Custom, Excise & Service Tax Tribunal
M/S. Magma Fincorp Ltd vs Commissioner Of Service Tax, Kolkata on 30 January, 2012
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, KOLKATA
EASTERN ZONAL BENCH: KOLKATA
Sl.No.1-2) Appeal Nos.S.T. 160 & 188/09
(Arising out of Order-in-Original No.61/Commr./ST/Kol/2008-09 dated 31.03.2009 passed by the Commissioner of Service Tax, Kolkata.)
FOR APPROVAL AND SIGNATURE
HONBLE SHRI S.K. GAULE, MEMBER(TECHNICAL)
HONBLE DR. D.M. MISRA, MEMBER(JUDICIAL)
1. Whether Press Reporters may be allowed to see
the Order for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the
CESTAT(Procedure) Rules, 1982 for publication in any
Authorative report or not?
3. Whether Their Lordship wishes to see the fair copy
of the Order?
4. Whether Order is to be circulated to the Departmental
Authorities?
M/s. Magma Fincorp Ltd.
Applicant (s)/Appellant (s)
Vs.
Commissioner of Service Tax, Kolkata
Respondent (s)
AND Commissioner of Service Tax, Kolkata Applicant (s)/Applicant (s) Vs. M/s. Magma Sharchi Finance Ltd.
Respondent (s) Appearance:
Shri Ravi Raghavan, Advocate for the Appellant(s) Shri D.K.Acharyya, Spl. Counsel for the Revenue CORAM:
Honble Shri S.K. Gaule, Member(Technical) Honble Dr. D.M. Misra, Member(Judicial) Date of Hearing :- 30.01.2012 Date of Pronouncement :-
ORDER NO.
Per Shri S.K. Gaule.
1. Both Revenue as well as assessee have filed appeals against Ld.Commissioners order No. 61/Commr/ST/Kol/2008-09 dated 31.03.2009. The assessee appellant/respondent is hereinafter referred to as assesseeand Revenue appellant/respondent is hereinafter referred to as department. Briefly stated the facts of the case are that the assessee is holder of service tax registration and they did not pay Service Tax amounting to Rs.4237.49 Lakhs and Education Cess amounting to Rs.51.45 Lakhs on taxable service viz. Banking & Other Financial Services and Business Auxiliary Services during the period from 01.04.2002 to 31.03.2007 and 01.07.2003 to 31.03.2007 respectively. After enquiry and verification of documents, a Show Cause cum Demand Notice was issued against them. Ld.Commissioner confirmed the demand of Rs.4,64,49,133/-(Rupees Four Crore Sixty Four Lakh Forty Nine Thousand One Hundred Thirty Three only) and imposed an equal amount of penalty of Rs.5,000/-(Rupees Five Thousand only) (which is not subject matter of this case) against M/s.Magma Leasing Ltd.. However, he dropped the demand of Rs.37,74,26,080/- (Rupees Thirty Seven Crore Seventy Four Lakhs Twenty Six Thousand and Eighty only) along with Education Cess. Aggrieved by the order Department as well as assessee both are in appeal.
2.1 Ld.advocate appearing for the assessee contended that the financial agreements of the assessee is not taxable under the Banking Financial Services(BFS) on the ground that as per the definition of BFS under section 65(12) the assessee has the option or is entitled to own the asset at the end of lease period. In their case as per agreement they are the owner of the asset and there is no clause in the agreement which say that their clients had the option to purchase the asset on expiry of the lease agreement. Hence the condition of meaning of financial lease is not satisfied. The condition is that the financial leasing agreements were entered by the applicant prior to 16.07.2007 and accordingly no Service Tax is payable by the applicant on the same in view of the Boards clarification issued vide letter No.B-II/I/2000/TRU dated 09.07.2001 wherein it has been clarified as under:-
A question has been raised whether lease or hire purchase agreements entered into prior to the imposition of levy would be leviable to service tax. In this regard, it is clarified that such agreement entered into prior to 16.07.2001 will not be leviable to service tax, provided goods have also been received by the lessee prior to 16.7.2001.
2.2 The contention is that the hire purchase agreement entered by the assessee with various clients is not liable to Service Tax since the agreement in nomenclature is purchase agreement but in effect it is in the agreement of Hire Purchase Finance Agreement (HPF) and the Hire Purchase Agreements are for financing motor vehicles. The contention is that the applicant is providing financial services to their buyers. The clause pertaining to registration in the hire purchase agreement stipulates that registration of the vehicle will be in the name of the buyer but the ownership vests on M/s.Magma till the last installment is paid to M/s.Magma. The contention of the assessee is that the above clause is only a deterrent considering the factual position which is clearly established that the buyer is owner of the vehicle and M/s.Magma is only a financier. Further the contention is that the income earned will also not come in the way of as Hire Purchase Finance Agreement. In support of their contention they have relied upon the decision of Honble Supreme Court in the case of Sundaram Finance Ltd. v. State of Kerala and Anr.-AIR 1966 SC 1178 which have been followed by Tribunal in the case of Bajaj Auto Finance Ltd. v. Commissioner of C.Ex., Pune 2007 (7) S.T.R. 423 (Tri.-Mumbai) and Kusalava Finance Ltd. v. Commissioner of Cus., C.Ex. & S.T., Guntur 2008 (10) S.T.R. 150(Tri.- Bang.). Similarly, the operating lease is also not liable to Service Tax. The contention is that gain on securitization is not liable to Service Tax since it is an amount received for sale of assets. The contention is that the department could not produce any evidence that the quantification by them duly certified by the Chartered Accountant is wrong. Similarly the reliance placed on the information provided by RBI is not correct since the information furnished is in the Format prescribed by the RBI. The contention is that the applicant had not collected Rs.93,00,000/-(Rupees Ninety Three Lakhs only) and retained the same with them, the demand under Section 11D can be only up to maximum amount of Rs.7,54,689/-(Rupees Seven Lakhs Fifty Four Thousand Six Hundred Eighty Nine only) and Rs.93,00,000/-(Rupees Ninety Three Lakhs only). The contention is that so far as demand of Service Tax on Business Auxiliary Service (BAS) is concerned the Show Cause Notice is vague and no specific sub-heading has been indicated. The applicant also made an alternate plea that at the best the service can be covered under Business Support Service w.e.f. 01.05.2006. The contention is that since the constitutional validity of the levy was challenged by equivalent leasing the extended period is not invokable.
3.1 Ld.Consultant appearing for the department contended that only Financial lease (FL) & Hire Purchase (HP) taxable and Operative Lease (OL) not taxable only name changed from FL & hp. From 01.06.07 an explanation clause differentiates FL from OL but before that no statutory difference existed. The applicant in their statutory returns submitted to RBI, their basic & major business is stated as hire purchase & lease.
3.2 In Memorandum of Association also their basic business is shown as equipment leasing, hiring, hire purchase, asset based finance of all kinds. In their annual reports also their basic business is shown as financing of assets on hire, lease or loan. It is only after the levy of Service Tax, they started terming hire purchase transaction as hire purchase finance and financial lease got rechristened as operative lease. International Accounting Standard defines a finance lease as one that transfers all risks and rewards incidental to ownership of an asset to the lesee though the title may or may not eventually be transferred. In the agreements relating to the so-called operating lease, the condition the user will be responsible for maintenance of the equipment and payment of taxes, and insurance is present whereas such a condition is stipulated in a financial lease and not an operative lease. (Both as per Apex Court judgment in Sundaram Finance Case in 1965 and definition of Financial lease under BFS, hire purchase said to be hire purchase finance is actually financial lease because all ingredients of the finance lease definition are present in the lease agreements).
3.3 The Ld.consultant for the department contended that the assessee has stated that their business is hire purchase finance and not hire purchase which is contradictory to their statutory returns to RBI, Memorandum of Association & Annual Reports. They have cited Tribunal order 2007(7) STR 423 (Tri-Mumbai) in the case of Bajaj Auto Finance Vs. CCE, Pune. In that case the Tribunal accepted the contention of assessee that title to goods vests with the company in case of hire purchase and with the purchaser in respect of hire purchase finance. Agreements in this case need to be individually examined which have not been explained by the assessee nor examined by the Commissioner. Total income under Finance Lease, Hire Purchase, Finance Income, Management Fes, penal interest, termination charges & securitization is shown as Rs.48.08 Crores, for 2002-03, but taxable value is given and accepted as Rs.37.14 Crores; for 2003-04 total income is Rs.71.15 Crores with taxable value accepted by adjudicator as Rs.20.10 Crores; value of taxable service for 2004-05 is Rs.4.95 Crores; for 2005-06 is Rs.1.38 Crores, and for 2006-07 is Rs.39.37 Lakhs only. As such a major transformation in their structure and mode of business reflected in their annual accounts or audit report? For example, if they change over from hire purchase to hire purchase finance, that would correspondingly decrease their physical assets like buses, trucks, other equipments because in many cases they would not be owners of physical assets but financiers of customers who would be owning physical assets. Their balance sheet would quickly in 3 to 4 years, shown decrease in gross block proportionately and structural change in the asset side. Has it been shown like that? There is no such analysis or finding.
3.4 Further in the Bajaj Auto Finance Case, Tribunal has essentially been guided by the Apex Court judgment in Sundaram Finance Vs. State of Kerala (1966) 17 STC 489 judgment which makes a distinction between hire purchase and hire purchase finance in the context of liability of Sales Tax. In para 11, the Honble Supreme Court observes that the class of hire purchase agreement must be distinguished from a transaction in which the customer is the owner of the goods and with a view to finance his purchase he enters into an arrangement which is in the form of hire-purchase agreement with the financier, but in substance evidences a loan transaction, subject to a hiring agreement under which the lender is given the licence to seize the goods. In the agreement between lessor and lessee, produced as evidence, nowhere the lessee is shown as owner of the equipment nor is there any clause like seizure of equipment for default in payment of EMI. In respect of vehicles, though the lessor is owner, for owner of the equipment nor is there any clause like seizure of equipment for default in payment of EMI. In respect of vehicles, though the lessor is owner, for registration a kind of deemed ownership is shown.
3.5 From total income of Magma consisting of the Components designated as finance lease, finance income, management fees, penal interest and termination charges, the amounts representing gain on securitization has been taken out to arrive at taxable value. For example, for the year 2002-03, out of total income of Rs,48.08 Crores, a sum of Rs.10.94 Crores has been taken out. Further, it is not reflected in RBI Returns nor any calculation of value of securitization is worked out by adjudicator while taxable value is reduced on this account considerably.
3.6 The ld.Consultant also made an alternate plea that as a lot of factual verification was not done, expert consultation was not made any total demand has been drastically curtailed without adequate verification or analysis, the entire matter may be remanded for de novo adjudication.
4. We have carefully considered the submissions and perused the records. We find that the Department itself is questioning the legality and propriety of the impugned order. Therefore, it is expedient to set aside the impugned order and remand the matter to the Original Authority for a fresh decision, who shall take into account the grounds of the Appeals advanced by the Appellants (Assessees). We also find that this Tribunal has been taking a consistent view in such cases where the Department itself is questioning the legality and propriety of the impugned order and the Appellants (Assessees) are also in appeal. This Tribunal in the case of M/s.Singh Brothers Exim Pvt. Ltd. and Shri Anand Kumar Singh Vs. CC(Port), Kolkata vide Tribunals order No.S-38-39/A-49-51/KOL/08 DATED 08.01.2008 and in the case of M/s.Automatic Small Scale Industries and Others vs. CCE, Kolkata-II & CCE-Kolkata-II Vs. M/s.Bansal Hardware Store & Others vide Order No.A-61-70/KOL/2012 dated 08.02.2012, on similar facts, remanded the case to the lower Adjudicating Authority for deciding it afresh. Therefore, the case is remanded to the Adjudicating Authority for deciding the matter afresh. It is made clear that all the issues are kept open and both sides are at liberty to produce documents in their support. Needless to say that an opportunity of hearing may be granted to the Appellants (Assessees). The Appeals are disposed of by way of remand.
(Pronounced in the open court on 21.03.2012.)
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(D.M.MISRA) (S.K. GAULE) MEMBER(JUDICIAL) MEMBER(TECHNICAL)
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Appeal No.S.T.160 & 188/09