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ST - Appellant had recovered rent for Computer colour display machines supplied to their dealers - no tax liability arises under Financial Services: CESTAT

By TIOL News Service

MUMBAI, JAN 30, 2017: THE appellant, during 2002-03 to 2006-07 had provided Computer Colour Display Machines along with software for matching of shades to their dealers. The said machines are used by the dealers for preparing shades of paint of particular colour and the same are sold by the dealers to the customers.

Appellant has been recovering rent for the machines provided by them and are paying sales tax.

The department is of the view that service tax liability arises on the amount received as rent.

Interestingly, the department sought to classify the said services under the category of ‘Banking & Other Financial Services'.

Appellant contested the SCNs but to no avail.

They are, therefore, before the CESTAT.

It is submitted that the definition of ‘Banking & Other Financial Services' under Section 65(12) provides that the services shall be provided by the banking company or a financial institution including a non-banking financial company; that the appellant is none of them and is a manufacturing company and manufacture paints; thatin view of Circular No. 83/1/2006-ST dated 4.7.2006, service tax is not payable by the company under the category of ‘Banking & Other Financial Services'.

Following case laws are also cited in support viz. BanswaraSyntex - 2009-TIOL-2214-CESTAT-DEL, Vidharba Iron & Steel Corpn. Ltd. - 2015-TIOL-1992-CESTAT-MUM Inox Air Products Ltd. - 2013-TIOL-1605-CESTAT-MUM, Mega Enterprises - 2015-TIOL-1142-CESTAT-MUM.

Furthermore, the entire arrangement by an agreement entered with the dealers is not a financial leasing but transaction of operating lease. [ Asea Brown Boveri Ltd. - 2004-TIOL-129-SC-MISC refers]. It is further argued that the demand is time barred and there is no suppression of facts.

The AR justified the service tax demands.

The Bench extracted the definition of ‘Banking & Other Financial Services' prevailing during the relevant period as well as the ‘taxable service definition' and observed that the amount received by the appellant in the case on hand would not be covered for taxing under "Banking and other Financial Services".

The Board Circular dated 04.07.2006 as well as the decisions in BanswaraSyntex (supra) , Inox Air Products Ltd. (supra) were relied upon to conclude that the impugned order is unsustainable and liable to be set aside.

The appeal was allowed.

(See 2017-TIOL-261-CESTAT-MUM)


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