Unreported Decisions – ST – March 2019
By Vinay Jain & Sachin Mishra, Advocate
1. Whether an amount received by a bank from the dealers for disbursement of loan to purchasers of vehicles would fall under the category of ‘Business Auxiliary Service’? Whether every flow of money from one person to another can have the character of ‘consideration’ for the purposes of Finance Act, 1994?
Facts & Pleadings:
M/s. IndusInd Bank Ltd. (hereinafter referred to as ‘Appellants’) are inter-alia engaged in providing ‘Banking and Other Financial Services’. The Appellants facilitate loan for vehicle buyers who intend to purchase vehicles from the dealers. The transaction of disbursing loan takes place only when there is an intention of the borrower to buy a vehicle and concurrence from the bank to provide the loan. The Appellants have entered into an understanding with vehicle dealers that when the Appellants disburses loan to the borrowers, a small amount is retained by the Appellants. The loan amount is given by issuing a cheque to the dealer. This is done only to ensure that the amount is not used by the borrower for any other purpose.
The Department alleged that the Appellants deducts commission/price discount which is offered by the dealer. The Department is of the view that such discount offered is in the nature of a commission for promotion, marketing and selling of the goods of the dealers as the Appellants have also given reduction in the interest rate on such loan. Hence, it is the case of the department that the said activity of the Appellant falls under the definition of ‘Business Auxiliary Services’.
The Appellants contended that they are engaged in lending business and mere fact that the Appellants receives some amount from the dealer cannot construe as a commission received for promoting the business of the dealer. The Appellants further contended that there is no service provider- service recipient relationship between the Appellants and the dealers. Therefore, the commission received does not have the character of ‘consideration’, as envisaged in the Finance Act, 1994. The Appellants also argued that they are engaged in rendering ‘Banking or other Financial Services, and are duly discharging the service tax liability on the interest collected on vehicle loans. Therefore, the department cannot vivisect the transaction of lending activity to fall partly under ‘Business Auxiliary Service’ for the commission/ disbursement received.
Judgment: The Hon’ble CESTAT held that in order to make sure that the loan is used only for the purpose of purchase of the vehicle, the Appellants issue the cheque in the name of the dealer. This ensures that the Appellants can seize the vehicle and recover the loan in case of default. So, merely because the cheque has been issued in the name of the dealer, it cannot be said that the Appellants are promoting the business of the vehicle dealer. Further, the Hon’ble CESTAT also observed merely because there is flow of money from the dealer to the bank, it cannot be said that there is a ‘consideration’ for services rendered. Every flow of money does not have the character of ‘consideration’. The Hon’ble CESTAT also held that the vehicle dealer is not the client of the Appellants, it is the borrower who is the client of the Appellants. The Appellants are only engaged in the activity of disbursement of loan. The Hon’ble CESTAT further held that the Appellants are neither acting on behalf of the vehicle dealer for the purchase or sale of vehicles nor providing any service to the dealer. Therefore, the Appellants do not fit into the category of ‘Commission Agent’ or under the definition of ‘Business Auxiliary Services’.
IndusInd Bank Ltd. vs the Commissioner of Service Tax, Chennai, CESTAT, Chennai, decided on 29-1- 2019 in the Final Order Nos. 40178-40180/2019.
2. Whether the activity carried out within the factory premises of Bokaro Steel Plant (‘BSP’) by way of processing and recovering of iron and steel scrap and returning of the same to BSL, will be eligible for the benefit of the Notification No. 8/2005-ST dated 01-03-2005 exempting services of production or processing of goods for or on behalf of the client?
Facts & pleadings: M/s. Ferro Scrap Nigam Ltd. (hereinafter referred to as ‘Appellant’) entered into an agreement with M/s. Steel Authority of India, Bokaro Steel Plant (‘BSP’) to undertake the job of processing and recovery of iron and steel scrap supplied to it by the latter. In terms of the contract with BSL, the Appellant was required to undertake processing and recovering of scrap by employing processes such as, screening, digging, magnetic separation etc. The processes were required to be carried out in the premises of BSP and the iron and steel scrap so recovered were to be returned to BSL for manufacture of excisable goods there from.
The Department was of the view that for the consideration received from BSL, the Appellant was required to pay service tax under the category of “Business Auxiliary Service”. The Department submitted that the Appellant shall not be eligible for the benefit of the Notification No. 8/2005-ST dated 01-03-2005, since the scrap generated in BSL can neither be considered as ‘raw materials’ or ‘semi- finished goods’ as covered by the said Notification. The department also alleges that the Appellant has failed to show that after processing, the said material has been returned back to the client for use in or in relation to the manufacture of goods, on which appropriate duty of Excise has been paid.
For the period prior to 16-6-2005, the Appellant referred an identical case in respect of their own other Unit situated at Bhilai, wherein the Hon’ble CESTAT in Ferro Scrap Nigam Ltd. Vs. CCE, Raipur, 2014 (36) STR 955 (Tri.-Del.) held that the said activity was not liable to payment of service tax for the period prior to 16-06-2005. For the period post 16-6-2005, the Appellant submitted that no service tax will be payable since the Appellant will be entitled to the benefit of Notification No.8/2005-ST dated 01.03.2005. The said Notification provides exemption in respect of service of production or processing of goods for or on behalf of the client, as provided under sub-clause (b) of Clause (19) of Section 65 of the Finance Act, 1994.
Judgment: The Hon’ble CESTAT set aside the demand for the period prior to 16-6-2005 by relying upon the decision of Ferro Scrap Nigam Ltd. vs. CCEx., Raipur, 2014 (36) STR 955 (Tri.-Del.). For the period post 16-6-2005, the Hon’ble CESTAT held that the activities carried out by the Appellant for BSP is in the nature of processing as the scrap is nothing, but a raw material for use in melting and further manufacture within the iron and steel plant. The Appellant also submitted a certificate issued by BSP, wherein it was certified that the scrap, after processing and recovery, has been returned back and the same has been used for the manufacture of dutiable steel products. Giving due consideration to such end-use certificate submitted by the Public-Sector Undertaking, the Hon’ble CESTAT held that the Appellant will be entitled to the benefit of Notification No. 8/2005 dated 01-03-2005.
M/s. Ferro Scrap Nigam Ltd. vs. Commissioner of Central Excise & Service Tax, Ranchi, CESTAT, Kolkata decided on 16-01-2019 in the Final Order No.FO/75155/2019.
Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.