Service tax on equipment financing and hire purchase

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CA Praveen Chopra (Querist)
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03 April 2008 How service tax is charged on vehicle financing. I mean to ask whether it is included in finance charges/interest or any other mode.How these service provider charge service tax ?
In addition, how a person can take cenvat against this because he just get emi statement in which no where else service tax amount is mentioned.

Dayal

Dayal (Expert)
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03 April 2008 The EMIs consist of recovery of principal amount (towards the original cost of the equipment] and finance / interest charges. The allocation between the principal and the finance / interest charges are known to and agreed upon by both the parties. The customer repayment schedule contains the details of the EMIs with the break up for the principal and the interest. In respect of leasing and hire purchase, the amount recovered as principal is not the consideration for services rendered but is credited to the capital account of the lessor / hire purchase service provider. The interest / finance charges is the revenue or income and is credited to the revenue account. Such interest or fee / documentation charges is the consideration for the services rendered and, therefore, they constitute the value of taxable service and service tax is payable on this value.

Accordingly, it is clarified that service tax in the case of financial leasing including equipment leasing and hire purchase will be leviable only on the lease management fee / processing fee / documentation charges (recovered at the time of entering into the agreement) and on the finance / interest charges (recovered in equated monthly installments) and not on the principal amount.

For further clarification write back on associatedm@gmail.com

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