Banking and Other Financial Services

Last updated: 20 September 2007

Court :
CESTAT, Chennai Bench

Brief :
Section 65 of the Finance Act, 1994 - Banking and other financial services - Period from 2002-03 to 2003-04 - Whether a company can be said to be rendering banking and other financial services only if its transactions with customers are of a financial nature - Held, yes - Assessee leased out its cryogenic tankers to others on payment of rental - Revenue demanded service tax under category of ‘Banking and financial services’ and imposed penalty upon assessee - Whether transaction in question was ‘equipment leasing’, but to attract service tax it should also be a ‘financial service’ and, therefore, there would be waiver of pre-deposit and stay of recovery in respect of amounts of tax and penalty - Held, yes [Paras 3 and 4] >> Facts The assessee was manufacturer of certain chemicals which were cleared from factory in cryogenic tankers owned by it. The assessee leased out some of its tankers to some other parties. The revenue issued show cause notice to the assessee demanding service tax in category of ‘Banking and other financial services’ and imposing penalty. The original authority, however, dropped those proposals. The revisional authority revised the decision of the lower authority and restored the demand of tax and penalties imposed on them. In the instant appeal, the assessee submitted that its service was not taxable as banking and other financial services inasmuch as it was purely in the nature of lease by a non-banking and non-financial company. The revenue, however, placing reliance on stay order Nos. 1087-1088/2006, dated 11-7-2006 passed by the Division Bench in Appeal Nos. S/147 and S/148/2006, submitted that the assessee would come within the scope of ‘body corporate’ and its said service would fall squarely within the ambit of ‘equipment leasing’.

Citation :
National Oxygen Ltd. v. Commissioner of Central Excise, Pondicherry

The assessee was not a banking company nor a financial institution. The expression ‘any other corporate’ requires to be read ejusdem generis with the expressions occurring prior thereto in the definition of ‘Banking and financial services’ under section 65. In other words, a company can be said to be rendering ‘banking and other financial services’ only if its transactions with customers are of a financial nature. The assessee was manufacturer of excisable goods and was not rendering any financial service to the buyers of such goods. The transaction in question was equipment leasing. But, to attract service tax, it should also be a ‘financial service’. It appeared from the records that tankers were leased out to others against payment of rental. Those tankers had to be distinguished from ATMs which were leased out by the assessee to its customer-banks in the case considered in stay order Nos. 1087-1088/2006, dated 7-11-2006. The ATM, by its very nature, is equipment integrally connected with banking services. [Para 3] There would be waiver of pre-deposit and stay of recovery in respect of the amounts of tax and penalties. [Para 4]