2008 (7) TMI 147 - AT - Service Tax

CESTAT Chennai: Service tax on jewellery appraisal charges not valid.

The Appellate Tribunal CESTAT, CHENNAI ruled in favor of the appellant-Bank, holding that the demand of service tax on charges collected by jewellery ... Banking and Other Financial Services under Section 65(12) - Scope of 'lending' within Other Financial Services - Taxability of charges collected by thirdparty appraisersBanking and Other Financial Services under Section 65(12) - Taxability of charges collected by thirdparty appraisers - Scope of 'lending' within Other Financial Services - Whether service tax can be demanded from the bank under subclause (viii) of clause (12) of Section 65 in respect of amounts collected by jewellery appraisers from borrowers and deposited with the bank - HELD THAT: - The impugned demand was made under the category 'Banking and Other Financial Services' as amended with effect from 1092004, specifically subclause (viii) of clause (12) which lists certain 'Other Financial Services' including lending. The tax demand, however, was not on any amount actually lent by the bank but on fees charged by independent jewellery appraisers from borrowers and deposited with the bank. The Tribunal accepted the appellant bank's contention that such appraisers' charges were not payments for any service provided by the bank nor were they amounts representing money lent by the bank. Consequently, those amounts did not fall within the scope of 'Other Financial Services' (including lending) taxed under Section 65(12) and could not be subjected to service tax on the bank under the impugned provision.Demand of service tax under subclause (viii) of clause (12) of Section 65 on amounts collected by jewellery appraisers and deposited with the bank is not sustainable; the impugned order set aside and the appeal allowed.Final Conclusion: The Tribunal held that the service tax demand against the bank for amounts collected by jewellery appraisers from borrowers (for the period 1092004 to 3132006) did not fall within 'Banking and Other Financial Services' under Section 65(12) and accordingly allowed the appeal and set aside the impugned order. Issues:Demand of service tax on charges collected by appraisers from bank borrowers for jewellery appraisal services.Analysis:The appeal before the Appellate Tribunal CESTAT, CHENNAI involved a dispute regarding the demand of service tax amounting to Rs. 3,77,222/- imposed on the appellant-Bank by the Commissioner of Service Tax for the period between 10-9-2004 to 31-3-2006. The tax was levied on the entire amount collected by jewellery appraisers from the bank's borrowers and deposited with the bank. The appraisers charged fees for appraising gold jewellery offered as collateral for loans, and the bank would recover 30% of these fees towards stationery expenses. The demand was made under the category of 'Banking and Other Financial Services' as per Section 65(12) of the Finance Act, 1994, specifically under sub-clause (viii) of clause (12) which includes 'Other Financial Services' like lending.The appellant argued that the demand was not on any amount lent by the bank but on the charges collected directly from the borrowers by the appraisers. The Tribunal considered this argument and found that the impugned demand was indeed not related to any money lent by the bank to its borrowers. The charges collected by the appraisers were for the appraisal services and were not covered under the definition of 'Other Financial Services' mentioned in the relevant section of the Finance Act, 1994. After careful consideration of the submissions, the Tribunal accepted the bank's plea and set aside the impugned order, thereby allowing the appeal in favor of the appellant.In conclusion, the Appellate Tribunal CESTAT, CHENNAI ruled in favor of the appellant-Bank, holding that the demand of service tax on the charges collected by jewellery appraisers from the bank's borrowers was not sustainable in law as it was not related to any amount lent by the bank and did not fall under the category of 'Other Financial Services' as defined in the Finance Act, 1994.