By TIOL News Service

MUMBAI, OCT 29, 2013: THE appellants are engaged in the manufacture of industrial gases. At the request of certain customers, the appellants are also supplying vacuum insulated storage tanks on lease basis. The appellants entered into contracts with their customers in respect of the storage tanks. According to the terms and conditions of the agreement, the appellants are charging a fixed amount per month as a consideration amount for lease of the equipment for three years.

It is the allegation of the Revenue that these services are taxable under the category "banking and other financial services". Both the lower authorities confirmed the demand and hence the appellant is before the CESTAT.

Two appeals were filed against the O-in-A dated 23/01/2007 and another appeal against O-in-A dated 16/03/2007. Whereas the period involved in the first O-in-A is January 2004 to September 2005, in the second O-in-A, the period is October 2005 to March 2006.

The matters were heard separately by the same Bench of the CESTAT on different dates.

The appellant submitted that they are engaged in the manufacture of industrial gases hence it cannot be said that the appellants are a banking company or other financial institution. Reliance is also placed on the Board circular B.11/1/2001-TRUdated 9.7.2001 clarifying the expanse of "banking and financial services". The decision in CCE, Vadodara-I vs. G.E. India, Industries (P) Ltd. - (2008-TIOL-1444-CESTAT-AHM) is also adverted to in support.

The Revenue representative relied upon the findings of the lower authority and submitted that as per the terms and conditions of the agreement, the storage tanks are installed by the appellants and the same are in the nature of equipment and the appellants are receiving a fixed amount for utilization of the facility of the tank; this shows that the appellants had given the equipment on lease; and since the appellants had leased the equipment which they termed in the agreement as a loan, the appellants are liable to pay service tax as provider of banking and other financial services.

The Bench observed that as per the terms and conditions of the agreement, the vacuum insulated storage tank was supplied to their customers for a fixed term, i.e. for three years, and the appellants are charging Rs.27,500/- per month; as per the agreement, the property, i.e. tank, always remains the property of the appellants and the same was only loaned for use to their customers ;the customers are not entitled to sell or offer for sale, mortgage and pledge the tanks.

Referring to the definition of "Banking & Other financial services" contained in the FA, 1994, the Board held -

"8. …, we find that the Board by the circular relied upon by the appellants, clarified in respect of the activity covered under banking and financial services. As the appellants are not a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern in relation to banking and other financial services, therefore we find merit in the contention of the appellants in this regard. Further, we find that the Tribunal in the case of G.E. India, Industries Ltd. (supra) in a similar situation where extrusion material was given on lease to Jain Irrigation, the Tribunal after looking into the terms and conditions of the agreement which are similar to the present agreement, set aside the demand…."

In fine, the demands were set aside and the appeals were allowed.

(See 2013-TIOL-1605-CESTAT-MUM & 2013-TIOL-1606-CESTAT-MUM)