2021 (3) TMI 676 - AT - Service Tax

Rajasthan Housing Board not liable for service tax on ancillary service charges & hire purchase deposits

The Tribunal held that services provided by the appellant, Rajasthan Housing Board (RHB), did not qualify as 'Banking and other Financial Services'. ... Classification of services - Banking and other Financial Services or not - construction of residential houses from loan sanctioned by HUDCO and other financial institutes and allotting these houses on hire purchase sale and outside sale basis to the consumers against collection of the amounts - interest income - extended period of limitation - penalty - suppression of facts or not? - HELD THAT:- Para h to clause (7) of section (2) of the Companies Act, 1956 clarifies that the body corporate, which fall in the exclusion clause of the above definition are not relevant for the purpose of Section 65 (12), which defines Banking and other Financial Services. Clause (c) of the above definition excludes such body corporate from the scope of Section 65 (12) of the Finance Act which cannot be defined as company and which are the creature of Government. The appellant is, apparently, constituted under Rajasthan Housing Board Act, 1970. No doubt, Section 4 (2) of the said Act describes ‘RHB’ as a body corporate but this body corporate is definitely not constituted under the Companies Act but by Rajasthan Government to have perpetual succession and a common seal with power to acquire hold and dispose of property both moveable and immovable and to enter into contracts and may by its corporate name sue and be sued and do all things and acts necessary for the purpose of Rajasthan Housing Board Act (RHB). ‘RHB’, otherwise also, cannot be called as Banking Company. The definition of Banking company as per Section 65 (11) of Finance Act, 1994. Section 5 (c) of Banking Regulation Act, 1949 clarifies that any company, which is engaged in manufacture of goods or carries own any trade and which accepts deposits of money from the public merely for the purpose of financing its business, as such manufacturer or trader shall not be deem to transit the business of banking. Once that is true even for a banking company, the appellant, who is not even the body corporate as defined under Section 16 (12) cannot be burdened with the tax liability for rendering ‘Banking and other Financial Services’, when it accepts deposits of money from the public merely for the purpose of financing the sale of houses being constructed by it. Since the basic function of the appellant is to construct the houses and then to sell it either by way of allotment or by way of hire purchase against receiving certain amounts whether in form of ASC charges or hire purchase charges, but the activity is specifically the activity of construction of complexes and as such said amount cannot be made liable to tax for rendering service as that of ‘Banking and Financial Services’ - the appellant is neither such a body corporate as is required for Section 65 (12) of Finance Act, 1994 nor the funds as that of ASC charges and hire purchase charges are the income of the appellant, who is held to be engaged in rendering construction services as contrary to Banking and Financial Services. Interest income - HELD THAT:- Service Tax (Determination of Value) Rules, 2006, though applicable for the period w.e.f. 18.04.2006 to 01.07.2012., it is observed that as per Rule 6 (2) thereof the value of taxable service has not to include interest on loans and on delayed payments of any consideration for provision of services or sale of property whether movable or immovable. The hire purchase deposits for the property which cannot be defined as goods are also out of the scope of taxable value as far as the interest thereupon is concern - whatever interest amount received by the appellant is confined to the activity with respect to the own products of the appellant i.e. the construction raised by them for being sold, that too, in welfare of economically weaker sections. Extended period of limitation - penalty - suppression of facts or not? - HELD THAT:- No question of suppression otherwise is possible. Department has failed to reflect any wilful misstatement. Appellant, admittedly, is an instrumentality of State Government. There cannot be an intent to evade the payment of tax - the Department is not allowed to invoke the extended period of limitation and the adjudication imposing penalties upon the appellant is also held to be apparently wrong. Appeal allowed - decided in favor of appellant. Issues Involved:1. Classification of services provided by the appellant under 'Banking and other Financial Services'.2. Taxability of ancillary service charges (ASC), hire purchase deposits, and interest received.3. Allegation of suppression of facts and imposition of penalties.Detailed Analysis:1. Classification of Services:The primary issue was whether the services rendered by the appellant, Rajasthan Housing Board (RHB), fell under the definition of 'Banking and other Financial Services' as per Section 65(12) of the Finance Act, 1994. The Tribunal examined the definition and concluded that the services provided by RHB did not qualify as 'Banking and other Financial Services'. The Tribunal noted that RHB, constituted under the Rajasthan Housing Board Act, 1970, was not a body corporate as defined under the Companies Act but an instrumentality of the state government. The primary function of RHB was the construction and sale of residential houses, not financial leasing or other financial services listed under Section 65(12).2. Taxability of Ancillary Service Charges, Hire Purchase Deposits, and Interest:The Tribunal addressed the taxability of various charges collected by RHB:- Ancillary Service Charges (ASC): The Tribunal held that ASC, used for the development of public facilities like schools and dispensaries, were not the income of RHB but liabilities or deposits. Therefore, they could not be considered as consideration for any taxable service and were not liable to service tax.- Hire Purchase Deposits: The Tribunal found that hire purchase deposits were part of the sale of houses and not a separate taxable service. The primary activity remained the construction and sale of residential houses, which was not taxable under 'Banking and other Financial Services'.- Interest Received: The Tribunal noted that financial transactions where consideration is represented by way of interest or discount were in the negative list under Section 66D(n) post 01.07.2012 and specifically excluded under Section 67 of the Finance Act, 1994, for the period prior. Thus, interest received by RHB was not subject to service tax.3. Allegation of Suppression of Facts and Imposition of Penalties:The Tribunal rejected the department's allegation of suppression of facts, noting that RHB, being a government undertaking, had consistently cooperated with the department and provided all requisite information. The Tribunal emphasized that there was no intent to evade tax, and thus, the penalties under Sections 77 and 78 were not justified. The Tribunal also referenced Section 80, which provides relief from penalties if there is a reasonable cause.Conclusion:The Tribunal concluded that RHB's activities did not fall under 'Banking and other Financial Services' and that the ancillary service charges, hire purchase deposits, and interest received were not taxable. The allegations of suppression of facts were dismissed, and the penalties were deemed unwarranted. Consequently, the Order-in-Original was set aside, and the appeal was allowed with consequential benefits to follow.[Pronounced in the open Court on 16.03.2021]