BANKING AND OTHER FINANCIAL SERVICES

CESTAT, Bangalore Bench

Praveen Autofin (P.) Ltd.

v.

Commissioner of Central Excise, Mangalore

DR. S.L. PEERAN, JUDICIAL MEMBER

AND T.K. JAYARAMAN, TECHNICAL MEMBER

FINAL ORDER NO. 1259 OF 2007

APPEAL NO. ST/22 OF 2007

November 12, 2007

Section 65 of Finance Act, 1994 - Banking and other financial services - Period 16-7-2001 to 31-2-2003 - Assessee was engaged in lending finance to various persons for purchase of automobile and collect interest from them - Revenue considering, agreement entered by assessee as for ‘Hire Purchase Service’ demanded service tax under category of banking and other financial services - Whether since assessee had not rendered services of hire purchase and had only lent money to borrowers, it could not be brought under category of taxable service under category of banking and other financial services’ - Held, yes [Para 5]

FACTS

The assessee was engaged in lending finances to various persons for purchase of automobile and collected interest from borrowers. Revenue proceeded against the assessee by way of issue of show cause notice demanding service tax under category of ‘banking and other financial services.’ On adjudication the Assistant Commissioner dropped the proceeding against the assessee. However the Commissioner reviewed said order and held assessee to be liable to pay service tax under the sold category. He also levied interest and imposed penalties on the assessee.

On appeal:

HELD

It was seen that the assessee had actually lent finances to various persons for purchase of automobile and collected interest from the borrowers. In view of the agreement Revenue thought that the assessee was engaged in the category of ‘Hire purchase services’. Therefore proceedings were initiated. However, the original authority after going through the documents and also the ‘Hire Purchase Act’ came to the conclusion that the documents namely the agreement entered by assessee with borrowers were not valid legal documents in terms of ‘Hire Purchase Act’ and he held that the services rendered by the assessee would not come within category of taxable services in terms of the Finance Act. But the Commissioner did not agree with the findings of the original authority. Hence he reviewed the order and passed the impugned order confirming the duty liability. [Para 4]

The assessee was simply lending money as per the records available and receiving, interest. The lending during the relevant period was not a taxable service. Even if it was held that the assessee was giving money under the ‘Hire purchase scheme’, it was clearly seen that the Tribunal in Bajaj Auto Finance Ltd. v. CCE 569 [2007] 9 STT 569 (Mum. - Cestat) had clearly drawn a distinction between ‘Hire Purchase Service’ which is taxable and Hire Purchase Finance Service which is not a taxable service. In any case, it was very clear that the assessee had not rendered the services of Hire Purchase. It only lent money to the borrowers. Therefore it could not be brought under the category of taxable services under banking and financial services. In view of the above no merit was found in the impugned order. Consequently the assessee was not liable to pay the tax demanded and hence no penalties also could be levied on them. Hence the impugned order was set aside. [Para 5]