By TIOL News Service

MUMBAI, DEC 06, 2013: CRORES is the order of the day and that too hundreds of them!

A total Service Tax demand of Rs.379.80 Crores is confirmed against the applicant along with interest and penalties.

The demand inter alia comprises of the following -

+ Rs.170 crores - repair and maintenance of vehicles manufactured by the applicants during the warranty period.

+ Rs.205 crores - providing banking and financial services.

+ Rs.1.72 crores - providing service of authorized service station.

The applicant is before the CESTAT seeking a stay and following are their submissions in respect of each of the category of demand -

Rs.170 crores -SCN is issued on the ground that the applicants had not provided list of dealers who are undertaking the activity of maintenance and repair during warranty period and the applicants also made provision in the balance sheet in respect of likely liability of the company in respect of repair and maintenance during warranty period.

++ The applicants are selling cars to the dealers and the dealers are undertaking the activity of repair and maintenance during warranty period and the applicants are reimbursing the amount to the dealer. The dealers are paying appropriate service tax in respect of the activity undertaken by them and the applicants are also taking credit of the service tax paid by the dealers. Bills raised by dealers indicating ST payment produced.

Rs.205 crores - allegation that the applicants were also undertaking the activity of financing the motor vehicles manufactured by them, in the name of Tata Finance Ltd , which is subsidiary of the applicants and subsequently merged with the applicant firm.

++ The contention is that the applicants are paying appropriate tax in respect of lease agreements, processing fee, pre-closure charges, termination charges etc. The demand is in respect of the interest which is received on the loans. The applicants are also selling the debts to various banks and the Revenue wants to tax the amounts for consideration of selling of debts under the banking and financial services. The contention is that the service tax on payment of loan is not liable to service tax earlier under Section 67 of the Finance Act and now under Rule 6(2) of the Service Tax Rules. In respect of selling of debts, the contention is that this cannot be treated as banking and financial services hence the demand is not sustainable.

Rs.1.72 crores - applicants are providing service by their own service station

++ as per the definition of ‘Authorised Service Station Service' the tax liability is on the service stations which are authorized by the manufacturer hence the demand is not sustainable.

The Revenue representative justified the demand and reiterated the order of the lower authority.

The Bench observed that as far as the demand of Rs.170 crores is concerned, the applicant has a prima facie strong case in favour as the activities of repair and maintenance service during the warranty period was undertaken by the dealers who were paying service tax on the said activity and the applicants were taking credit of the same.

As for the demand of Rs.205 crores, the Revenue contention being that the applicant is providing ‘banking and financial service', the Bench observed -

"12. We find that the applicants are financing the vehicles manufactured by them by way of loan. The interest on the loan is not liable to service tax as per the provisions of the Finance Act. In respect of the activity such as processing charges, pre-closure charges, termination charges etc. the applicants are paying appropriate service tax. The applicants are also paying service tax in respect of lease agreements. In cases where the applicants were selling the debits to various banks, we find that the applicants are receiving consolidated amount in respect of the assignment of the loan and the buyer of the debts will get the amount in due course as per the terms and conditions of the loan, under which it has been disbursed to the customers. In view of this, prima facie the applicants have a strong case on this issue also."

In the matter of demand of Rs.1.72 crores of service being provided as authorized station, the applicant undertook to deposit an amount of Rs.55 lakhs.

So, the CESTAT directed the applicant to deposit the said amount for obtaining stay in the matter.

(See 2013-TIOL-1818-CESTAT-MUM)