Operating lease of motor vehicles not taxable as “Banking & Other Financial Services” says CESTAT

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CESTAT upholds Adjudicating Authority’s findings, sets aside service tax demand of Rs. 24.39 Cr (approx.) towards operating lease arrangement of motor vehicles under “Banking and Other Financial Services” (BOFS) category; Notes assessee’s plea that under said arrangement, it only collected lease rental and assets were put up for sale after expiry of lease period through bidding process, hence Revenue could not assume said transaction to be a ‘financial lease’; Observes, whole thrust of distinction for financial lease and operating lease is ownership of asset, which aspect has been adequately analyzed and covered in adjudication order by referring to AS-19 and relevant conditions of lease agreement; States that income from operating lease is shown as ‘lease rental’ and assets are depreciated in lessor’s account, while in case of financial lease no depreciation is accounted for and income on such arrangement is shown as EMI received i.e. Principal + Interest on which appropriate service tax is discharged under BOFS; Accepts Adjudicating Authority’s reliance on SC ratio in Association of Leasing and Financial Service Companies and Industrial Credit and Development Syndicate Ltd. to conclude that lease arrangement on which assessee discharged VAT is operating lease, not chargeable to service tax : Delhi CESTAT

Citation: [TS-7-CESTAT-2018-ST]