ST - Appellant is mere lessor of land & machinery - if agreement does not provide for transfer of assets at end of lease term during which monthly user charges are collected, such leasing would not fall under financial lease: CESTAT
By TIOL News Service
MUMBAI, AUG 06, 2013: THE appellant entered into a lease agreement for lease of land, building, plant and machinery and other equipment including rolling mills owned by them to M/s. FACOR under an agreement dated 20/05/1998, renewed from time to time and valid up to 31/01/2004. As per the lease agreement, the consideration was fixed at Rs.2.50 lakhs per month plus 1/3 rd of the net profit made by FACOR on operation of the plant.
The department was of the view that the activity undertaken by the appellant is financial leasing and, therefore, would be liable to service tax under the category of "banking and financial service".
Accordingly, a demand of Rs.9,52,252/- was served to the appellant for recovery of Service Tax for the period 16/07/2001 to 28/02/2003. The adjudicating authority confirmed a demand of Rs.3,41,250/- along with penalty and interest.
The lower appellate authority came to the conclusion that the activity undertaken by the appellant merits classification under "banking and financial service". However, the value for the levy of service tax should be the amount received towards documentation and processing fee and the interest component only. Accordingly, the adjudicating authority was directed to re-quantify the amount and pass a fresh order.
Against this order, the appellant is before the CESTAT.
It is submitted that -
+ the activity undertaken by the appellant is not "financial leasing" coming under the "banking and financial service" but simple lease agreement for the land, building, plant and machinery of the appellant. The appellant continues to own the assets and receives only lease rental for the period of lease.
+ On completion of lease period, the property comes back to the possession of the appellant and, therefore, the activity is not liable to service tax.
+ the appellant is not a banking company or non-banking financial institution or any such institution notified by the RBI which is in the primary business of receiving deposits or lending money and, therefore, they are not liable to pay service tax.
+ Reliance is placed on the decisions in GE India Industries (P) Ltd. - (2008-TIOL-1444-CESTAT-AHM) & Banswara Syntex - (2009-TIOL-2214-CESTAT-DEL), wherein it is held that the activity of leasing does not amount to banking and financial service.
The Bench observed –
"5.1 As per Section 65(105) (zm) as it stood at the relevant time, the "taxable service" means any service provided or to be provided to a customer, by a banking company or a financial institution including a non-banking financial company, or any body corporate or commercial concern, in relation to banking and other financial services". The appellant is neither a bank or a non-banking financial company as defined in law. The appellant is also not a non-banking institution notified by the RBI whose primary business is of receiving deposits or lending money. Therefore, the appellant is not a service provider envisaged in law in respect of banking and financial services at the point of time. The appellant is a mere lessor of the land, plant and machinery owned by him. This Tribunal, in similar circumstances, in the case of GE India Industries (P) Ltd and Banswara Syntex, (supra) held that if the agreement does not provide for transfer of assets at the end of the lease term during which monthly user charges are collected, and all risks and rewards incidental to ownership are not transferred, such leasing activities would not fall under the category of financial lease coming under the "banking and financial service". The ratio of these decisions will apply to the facts of the present case. Therefore, we hold that the activity undertaken by the appellant does not come within the purview of "banking and financial services"….
In fine the order was set aside and the appeal was allowed.
In passing: Hopefully there is no appeal pending from the Revenue side against the initial o-in-o or for that matter the o-in-a and also no order has been passed consequent upon remand by the lower appellate authority. After all, the o-in-a was passed almost eight years ago.
(See 2013-TIOL-1182-CESTAT-MUM)
