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ST - Notfn 4/2006 - Applicant is engaged in giving loan for earning interest through leased vehicles - as interest on loan is exempted from ST in terms of s.67 & rule 6(2)(iv) of Valuation Rules applicant has prima facie case: CESTAT

By TIOL News Service

MUMBAI, NOV 10, 2014: THE appellant is non-banking Finance Company and engaged in the activity of providing services of hire purchase and financial leasing of commercial vehicles. The service provided by the applicant is having three components namely, Principal, Interest amount & Processing/Management fees.

The applicant is paying service tax on processing/management fees of the service provided by them. They are not paying service tax on principal and interest.

Revenue is of the view that as the applicant is engaged in financial leasing service, therefore, as per notification No. 4/2006-STdt. 1.3.2006, the applicant is entitled for 90% exemption of the interest charged by them and remaining 10% collected by them is includible in the taxable service.

SCNs were issued and the demands were confirmed by the CST, Mumbai-I.

Before the CESTAT the applicant submitted that as per decision of apex Court in Association of Leasing& Financial Service Companies vs. Union of India - 2010-TIOL-87-SC-ST-LB , the applicants are nothing but a company engaged in the business of financing loan and as per s. 67 of the Finance Act, 1994, interest on loan is not includible in taxable service. It is further submitted that in 2006, Service Tax Valuation Rules were introduced and as per Rule 6(2)(iv) of the said Rules, the interest on loan was not includible in taxable service. Therefore, the applicants are not required to pay service tax on interest component and, therefore, waiver of pre deposit be granted.

The AR opposed this contention and submitted that as the applicant is engaged in the activity of financial leasing service, the demand raised and confirmed is proper and, therefore, the applicant should be directed to make pre deposit.

The Bench observed –

“…Prima facie we do agree with the contention of the Ld. Counsel for the applicant that applicant is engaged in the activity of giving loan for earning interest through leasing the vehicles under financial leasing services. As per explanation to Section 67 of the Finance Act, 1994, interest on loan is exempted from service tax is not to be included in the taxable service and same has been followed by Rule 6 (2)(iv) of the Service Tax Valuation Rules, 2006….”

Holding that the applicant has made a prima facie case, the requirement of pre deposit was waived and stay was granted from recovery of the adjudged dues.

Make note: Notfn. 4/2006-ST was rescinded by notification 34/2012-ST dated 20.06.2012 w.e.f 01.07.2012 and the ST Valuation Rules, 2006 came into being by notification 12/2006-ST dated 19.04.2006.

(See 2014-TIOL-2223-CESTAT-MUM)


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