2006 (11) TMI 584 - AT - Service Tax

CESTAT Mumbai: Hire Purchase Finance Services - Ownership and Possession Key

The Appellate Tribunal CESTAT Mumbai ruled in favor of the applicants in a case concerning liability for service tax under section 65(10) of the Finance ... - Issues involved: The issue involved in this case is the liability to service tax under section 65(10) of Chapter V of the Finance Act, 1994, concerning hire purchase finance services.Judgment Summary:The Appellate Tribunal CESTAT Mumbai heard both sides on the application for waiver of pre-deposit of service tax and education cess. The dispute arose from the applicants being engaged in hire purchase finance, leading to the imposition of service tax, education cess, and penalties under various sections of the Finance Act, 1994. The contention was whether the applicants were liable to service tax under section 65(10) for providing financial leasing services. The period in dispute was from July 16, 2001, to March 31, 2005.The applicants argued that they were not conducting hire purchase business but hire purchase financing. The Revenue argued that both terms were synonymous based on the nature of agreements and payments involved. Upon examining the agreements between the hirer and the applicants, it was found that the hirer retained ownership of the vehicle in hire purchase finance agreements, unlike traditional hire purchase agreements where the title remains with the hire purchase company until full payment. The distinction between hire purchase and hire purchase financing was supported by the apex court's decision in Sundaram Finance Ltd. v. State of Kerala [1966] 17 STC 489, emphasizing the ownership and possession aspects in such transactions.The Supreme Court's decision highlighted the complexity of hire-purchase agreements and the distinction between ownership and financing arrangements. The court clarified that hire purchase financing agreements involve terms giving the finance company control over the goods, indicating a loan transaction rather than a sale. Therefore, the Tribunal concluded that the transaction between the applicants and their customers was a hire purchase finance transaction, not a traditional hire purchase agreement. Considering the strong prima facie case made by the applicants based on legal precedents, the Tribunal waived the pre-deposit of service tax, cess, and penalties pending the appeal.This summary provides a detailed overview of the judgment, highlighting the key legal arguments and decisions made by the Appellate Tribunal CESTAT Mumbai regarding the issue of liability for service tax in hire purchase finance transactions.