Whether leasing of land, machinery etc. leviable to service tax under Banking services?

PJ/Case law/2013-14/1873

Case:-VIDARBHA IRON & STEEL CORPORATION LTD Vs COMMISSIONER OF CENTRAL EXCISE, NAGPUR

Citation:-2013-TIOL-1182-CESTAT-MUM

Brief Facts:-The appellant, M/s.Vidarbha Iron & Steel Corporation Ltd., Nagpur, 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 upto 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". As the appellant had not discharged the service tax liability, a service tax demand of Rs.9,52,252/- was made on the appellant for the period from 16/07/2001 to 28/02/2003 vide notice dated 02/05/2003. The said notice was adjudicated upon and the demand of service Tax for Rs.3,41,250/- was confirmed for the period 16/07/2001 to 28/02/2003 classifying the service rendered by the appellant as "banking and financial service" along with interest thereon. Penalties were also imposed. The appellant preferred an appeal before the lower appellate authority, who 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.

Appellant Contention:- The appellant submits that the activities 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. He also submits that the appellant is not a banking company or nonbanking 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. He also relies on the decision of the Tribunal in the case of GE India Industries (P) Ltd., {2008 (12) STR 609 (Tri-Ahmed)} = (2008-TIOL-1444-CESTAT-AHM) and Banswara Syntex, {2010 (18) STR 68 (Tri-Del)} = (2009-TIOL-2214-CESTAT-DEL), wherein it was held that the activity of leasing does not amount to banking and financial service.

Respondent Contention:- The Respondents reiterates the findings of the appellate authority.

Reasoning of Judgement:-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 anybody corporate or commercial concern, in relation to banking and other financial services". The appellant is neither a bank nor 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, the activity undertaken by the appellant does not come within the purview of "banking and financial services".

Decision:-Appeal allowed.

Comment:-The substance of this case is that for a service to be taxable under the category of “Banking & Financial services”, the service provider should be a bank or non-banking institution notified by RBI. As the appellant is not service provider as defined under the said service, no service tax is leviable on the leasing activity of the appellant. Moreover, the asset leased is not transferred at the expiry of the lease term so as to constitute a finance lease.

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PJ/Case law/2013-14/1873

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