TaxTMI 
TaxTMI 
2019 (9) TMI 583
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.... C Wing, 10th Floor, Senapati Bapat Marg, Lower Parel, Mumbai 400013 along with accrued interest thereon at the applicable rate under Section 75 thereof; ii. I impose the mandated penalty of Rs. 36,26,02,574/- (Rupees Thirty Six Crore Twenty Six Lakhs Two Thousand Five Hundred Seventy Four Only) under Section 78 of Chapter V of Finance Act, 1994 upon M/s HDFC Bank Limited Kamala Mills, Trade World, C Wing, 10th Floor, Senapati Bapat Marg, Lower Parel, Mumbai 400013; and iii. I impose a penalty of Rs. 5000/- (Rupees Five Thousand Only) under Section 77(2) of Chapter V of Finance Act, 1994 for each infraction committed by M/s HDFC Bank Limited Kamala Mills, Trade World, C Wing, 10th Floor, Senapati Bapat Marg, Lower Parel, Mumbai 400013 under Section 70 of Chapter V of Finance Act, 1994 by filing incorrect ST-3 returns for the period from April 2008 to March 2011; and impose a penalty of Rs. 10,000/- (Rupees Ten Thousand Only) under Section 77(2) of Chapter V of Finance Act, 1994 for each default committed by M/s HDFC Bank Limited Kamala Mills, Trade World, C Wing, 10th Floor, Senapati Bapat Marg, Lower Parel, Mumbai 400013 under Section 70 of Chapter V of Finance A....
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.... money and nothing but the interest income, and not subjected to tax. ii. In case of Cauvery Spinning and Weaving Mills Ltd [340 ITR %%)] it was held that to call an amount received as interest at least one of the condition should be satisfied that the amount has been received as due on account of any money either borrowed or debt incurred. In the present case the debt is incurred when bank has extended credit for payment purchase price of vehicle. Same has been inserted by way of section 65B(30) in Finance Act, 1994, "interest" means interest payable in any manner in respect of any money borrowed or debt incurred (including deposit, claim or similar right or obligation) but does not include any service fee or other charge in respect of the money borrowed or debt incurred or in respect of any credit facility which has not been utilized." iii. While the nature of income received is interest but since the interest on loan amount in this case is not received from the borrower but is received from the dealer/ manufacturer, it is called subvention income. iv. Law do not prescribe that the interest income should have been received from the borrower onl....
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.... [2009 (13) STR 56 (T-Bang)] xii. Subvention do not arise due to any marketing service by the appellant to any third person but has direct correlation to its own business activities. They being banking company neither have any expertise or are equipped with any facility to market the motor vehicles. They only promote their financial products and not the vehicles sold by the dealers/ manufacturers. Their role is limited to that of financier in the low cost financing schemes. Thus if it is argued that there is promotion at all they are promoting their own business. For the limited purposes of promotion of its financial products, undertaken jointly with the dealers/ manufacturers, they can by no stretch of imagination be said to be promoting the business of the dealers. They would rely upon the following decisions in their support: a. Phase 1 Entertainment Pvt Ltd [2008 (12) STR 174 (T-Bang)] b. Saturday Club Ltd [2006 (3) STR 305 (Cal)] c. Dalhousie Institute [2006 (3) STR 311 (Cal)] d. India International Centre [2007 (7) STR 235 (T-Del)] xiii. As per Oxford dictionary "interest is money charges or paid for use of money". In view....
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.... c. Guru Instrument [1998 (104) ELT (ALL)} d. Smitha Shetty [2004 (156) ELT 84 (T)] approved in [2004 (174) ELT 313] e. Tamil Nadu Housing Board [1994 (74) ELT 9 (SC)] f. Hindustan Steel Ltd [1978 (2) ELT 159 (SC)] g. Port Officer [2010 (257) ELT 37 (Guj)] h. Transpek Industries Ltd [1999 (108) ELT 562] i. Paramjit Sandhu Engg [1999 (30) RLT 595] j. Avon Scales Co [1999 (31) RLT 373] k. Mechanico Enterprises [1998 (26) RLT 386]. 4.1 We have heard Shri Abhishek A Rastogi and Shri Pratyush Sana, Advocates for the Appellant and Shri M K Sarangi Additional Commissioner, Authorized Representative for the revenue. 4.2 Arguing for the Appellants learned Counsel submitted that- • The issue in the present case has been adjudicated by the tribunal in case M/s IndusInd Bank Ltd (earlier M/s Ashok Leyland Finance Ltd) 2019 (2) TMI 26; • True nature and character of payment cannot be determined merely based on nomenclature, intention of contracting parties and transaction under relevant legislations/ regulatory bodies will have to be considered; • The applicable laws do n....
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....d [2019 (1) TMI 511] has not considered the arguments pertaining to dealer subvention. These arguments have been placed on record for consideration of the bench now. It is not the case that they have received this income as finance charges from the customers. Accordingly it will be unfair to treat subvention income as finance charges on principal amount recovered by the bank. To this effect this decision is sub silent and should not be applied to their case. • Demand in any case prior to July 2011 is barred by limitation as extended period of limitation cannot be invoked in the facts and circumstances of this case. 4.3 Arguing for the revenue learned Authorized Representative submitted that- • The appellant are in the business of financing vehicles. As per the business model followed, they have tied up with vehicle manufacturers/ dealers for financing, they issue joint advertisement and manufacturers/ dealer for financing at rate lower than normal bank rate promote their business. They had taken the CENVAT Credit with respect to service tax paid on advertising invoice. During audit it was found that received some amount of commission from car manufactur....
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.... outstanding loan is not relevant. • The issue is squarely covered by the decision in case of Speed Finance Service [2017-TIOL-2548-CESTADEL], Toyota Lakozy Pvt Ltd [2017 (52) STR 299 (T-Mum)] & Tata Motors Ltd [2019 (1) TMI 511]. • The issue in case of IndusInd Bank Ltd relied upon by the Appellants is not the same. The illustration given in para 12.1 & 12.2 does not show how it is similar to the present case, rather the issue there was a simple loan agreement and if at all it involved any payment by consumer stores/ construction companies is not forthcoming. • Since appellants had never disclosed the fact in respect of "subvention income" to the department in any manner prescribed in ST-3 returns they have suppressed the facts from department which came to light only by the way of audit. Hence extended period of limitation has been rightly be invoked for making the demand. On the issue of limitation they would rely on the decision in following cases- • City Financial Consumer Finance India Ltd [2017-TIOL-2363-CESTAT-DEL] • Reliant Advertising [2013 (31) STR 166 (T-Del)] • Vodafone Digilink [2011 (24) ST....
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....removal of doubts, it is hereby declared that for the purposes of this clause, - (a) "Commission Agent" person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person - means any (i) deals with goods or services or documents of title to such goods or services; or (ii) collects payment of sale price of such goods or services; or (iii) guarantees for collection or payment for such goods or services; or (iv) undertakes any activities relating to such sale or purchase of such goods or services; (b) "Excisable Goods" has the meaning assigned to it in clause (d) of Section 2 of the Central Excise Act, 1994; (c)"Manufacture" has the meaning assigned to it in clause (f) of Section 2 of the Central Excise Act, 1944;" The taxable service in relation to "Business Auxiliary Service" is defined by Section 65(105)(zzb) as follows: "Taxable Service" means any service provided or to be provided to a client by any person in relation to business auxiliary service. 5.3 The case of revenue in the present case is that appellants....
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....romotes their business, not vice versa. If this is true then no explanation arises why the manufacturer as well as car dealers would part with a proportion of their commission, receivable from the noticee. Another question, which arises simultaneously, is why the manufacturer and vehicle dealer also share the advertisement costs to promote the business of the noticee. The noticee provides no explanation to these questions. They have no answer to offer. 16. It is wrong on the part of the noticee to plead that in this arrangement of things the noticee does not render any service to the manufacturer and vehicle dealers. In this scheme of things, the rendering of service is from both the sides. While the dealers and manufacturer promote the business of the noticee, it is the noticee who also promotes the business of the manufacturer and vehicle dealers. The availability of nil or very low interest to buy vehicle enable the dealers to enhance their business of vehicle selling. The facility of these special schemes serve as special purpose vehicle (SPV) or platform, whereon, the business of the manufacturer and the vehicle dealers get promoted. It is for this reason that this arrangem....
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.... are no free lunches. Any facility provided by an business entity to its client/ customer whether it is business or an individual comes with the associated cost. The associated cost is the consideration for provision of the said facility. Thus by providing or agreeing to provide the loans at lower rate/ nil rate to the customers of vehicle manufacturer/ dealers. Appellants have promoted the sale of the vehicle in the hands of such vehicle manufacturer/ dealer. Hence we have no hesitation in holding that the facility of nil/ low interest rate provided by the appellants to the customers of vehicle manufacturer is service classifiable under the category of "Business Auxiliary Service" as defined by Section 65(19) of the Finance Act, 1994, and the amount paid by the vehicle manufacturer/ dealer and accounted by the appellants as subvention income is the consideration for the provision of such service. 5.5 Appellants have strenuously argued before us that the amounts received by them from the vehicle manufacturers/ dealers is nothing but the loss of interest, they would have suffered on account of providing the loans at the reduced rate of interest. They have even submitted the calcu....
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....t necessary that when a loan is prepaid or reset, the lender suffers. In fact, foreclosure by prepayment and reset are relatable to lending and if an application for processing a loan application is chargeable to Service Tax and processing fee charged for foreclosure/prepayment of loan or reset of interest would also be chargeable. In fact, we are unable to see what is the difference between the liability of Service Tax in respect of application of a loan where the processing fee is charged which is independent of loan and over and above the interest, when we see here also it is over and above the interest. The processing fee is charged for considering the various aspects such as credit worthiness of the borrower repaying capacity of the borrower, period of loan vis-à-vis repaying capacity of the borrower, quality of assets of the borrower etc. When the proposal is made for prepayment of loan or resetting, processing the application is involved. Therefore, there is definitely an element of service in prepayment of loan or resetting of interest. As already discussed earlier, the definition covers any activity in relation to lending. 18.1 Reset charges/prepayment charges ch....
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....s context, the Tribunal in the case of Commissioner of Service Tax, Mumbai vs. J.M.D. Marketing Pvt. Ltd. - 2016 (46) S.T.R. 504 (Tri.- Mumbai) has held that the assessee would be liable to pay service tax on gross amount of commission received from banks for marketing of products. With regard to the submissions of the ld. Advocate that since no tax was deducted at source by the bank from the commission amount for income tax purpose, the same should not be considered for computation of the service tax liability, we are of the view that the Income Tax provisions are applicable entirely on different circumstances and the statute deals with payment of tax on the earning of income of the assessee concerned; whereas, contrary is the case under the Finance Act, where-under service tax is levied on the provisions of taxable service by the assessee. Hence, the service tax demand confirmed by the authorities below will be sustainable on merits." City Financial Consumer Finance India Ltd {2017-TIOL- 2363-CESTAT-Del] "Brief facts of the case are that the appellant is a NonBanking Finance Company and is engaged, inter alia, in the business of providing various types of loans to its custo....
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.... [2017 (52) STR 299 (T-Mum)] & "7. Appellant, admittedly, assists customers who desire to have their vehicles financed by bringing financial institutions and buyers together. For this, financial institutions offer them a commission on the loan amount sanctioned of which a portion is passed on the customer as an upfront subvention of the total interest payable. The appellant pays tax only on the actual commission received and the impugned order has confirmed tax of Rs. 18,28,528/- and Rs. 3,80,825/- for the two periods in dispute. Learned Authorized Representative relies upon Jaybharat Automobiles Limited v. Commissioner of Service Tax, Mumbai [2015-TIOL-1570-CESTAT-MUM] to contest the claim of appellant that the subvented component is not received as consideration by appellant. Further reliance was placed on Joshi Auto Zone Pvt. Ltd. v. Commissioner of Central Excise, Chandigarh [2016 (42) S.T.R. 739 (Tri.- Del.)] and on HBL Global Pvt. Ltd. v. Additional Commissioner of Income Tax [ITA No. 386/Mum/10]. Learned Chartered Accountant has sought to distinguish the factual position in these cases from those of the appellant. 8. We have perused the decisions cited by both si....
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....r customers who desired to avail loans from the banks. The respondents had undertaken to process those applications and after scrutiny forward them to the bank. Admittedly, for such services, they were paid commission by the bank, which was reflected in their account. Once consideration accrued to them, as against the services provided by them to the bank, by way of commission, it was hardly of any consequence how a portion of that commission, which as per the particulars provided by the Bank was given as "pay out" to assessees in respect of which even the TDS was deducted, was spent by them. If they chose to give some amount from that gross commission amount to their customers either directly or through the bank, it would not change the nature of the receipts in their hand." In another case, i.e. Em Pee Motors Ltd. v. CCE, Chandigarh reported in 2012 (25) S.T.R. 68, the Tribunal held as under :- "4. Considered arguments of both sides. It is very clear that as per Section 67 of Finance Act, 1994 Service Tax shall be paid on the gross amount charged by the service provider. It is also noticed that as per the submission of the appellant, the TDS certificate was issued by the Ba....
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....arious decisions they have contended that the extended period of limitation in this case could not have been invoked for the purpose of demanding the service tax. For the same reason they contend that penalties under section 78 could not have been imposed on them. Commissioner has in para 20 & 23, discussed the issue of limitation and penalty under Section 78 as follows: "20. The noticee had been aware of the true scope of these schemes and its twin benefits. They had also been aware how they all benefited from these schemes. They had also been aware that in the scheme of arrangement the noticee and also the vehicle dealer or manufacturer promoted business of one another. The promotion led to rendering of the defined taxable business auxiliary services, which was taxable and exigible to service tax. Despite such known taxability the noticee failed to the commandment of law. They did not even share the relevant facts of this rendering with the jurisdictional service tax authorities. Their ST-3 returns and its accompaniments remained silent and, thus, untrue. In consequence, the curative mechanism of the proviso to Section 73(1) of Chapter V of Finance Act, 1994 has been rightly i....
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....ellant will advance their case in view of the admitted fact that they were taking the CENVAT Credit in respect of the input services. On the contrary we find that appellants had never made any declaration about the "subvention income" to the department in prescribed manner or on ST-3 returns being filed by them. Thus appellant have deliberately withheld the information in respect of the subvention income recovered by them, from the department with the intention to evade payment of service tax. Hence we are of the opinion that extended period is rightly invoked for demanding service tax from the appellant. Same view has been expressed by this tribunal in the decisions relied upon by the Authorized Representative. Since we uphold that the demand by invoking extended period of limitation the penalty under Section 78 of Finance Act, 1994 to is sustained in light of the decision of Hon'ble Apex Court in case of Rajasthan Spinning and Weaving Mills [2008 (238) ELT 3 (SC)]. 5.8 Penalty has been imposed by the Commissioner under Section 77 for various infractions noticed in complying with provision of law. For imposing penalty under Section 77 Commissioner has recorded as follows: "2....