LexASSOCIATION OF LEASING AND FINANCIAL SERVICE COMPANIES versus UNION OF INDIA AND ORS.
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[2010] 13 S.C.R. 381 ASSOCIATION OF LEASING AND FINANCIAL SERVICE COMPANIES v. UNION OF INDIA AND ORS. (Civil Appeal No. 9344 of 2010) OCTOBER 26, 2010 [S.H. KAPADIA, CJI, K.S. PANICKER RADHAKRISHNAN AND SWATANTER KUMAR, JJ.] Finance Act, 1994 (as amended): ss. 65(12), 65(105)(zm), 66 - Non-Banking Financial Company - Equipment leasing and hire-purchase - Service tax imposed by s.66 on the value of taxable services referred A B c to in s.65(105)(zm) read with s.65(12), insofar as it relates to D financial leasing services including equipment leasing and hire-purchase - Held: Is within the legislative competence of the Parliament under Entry 97, List I of the Seventh Schedule to the Constitution by virtue of Article 366 (29A) of the Constitution - Reserve Bank of India, 1934 - s.451 - Constitution of India, 1950 - Article 366(29A) - Accounting standard AS-19 - Lease - Notification no. 114 dated 2. 1. 1998 issued by RBI ...:. Constitution (Forty-sixth Amendment) Act, 1982 - Finance Act, 2001- Service tax - Bank/Banking. E s.65(12) - Banking and financial services - Meaning of. F s.65(12) - Funding activity undertaken by the financing party in the form of loan or equipment leasing or hire-purchase financing, would be exigible to service tax if such activity falls in the category of "banking and other financial services" ul G s. 65(12) of the Act. s. 65(12) - Equipment Leasing and Hire-Purchase Finance - Meaning of - Held: These are activities of long 381 H 382 SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R. A term financing and fall within the ambit of "banking and other financial services" - A financial lease is a lease that transfers substantially all risks and rewards incidental to ownership - The income which the lessor earns is by way of finance/ interest charges in addition to the management fees or B documentation charges, etc. - It is this income which constitutes the measure of tax for the purposes of calculating the value of taxable services u/s.67 of the Act. Constitution of India, 1950: C Article 248; Seventh Schedule, List I, Entry 97, List II Entry 54 - State Legislature - Competence of, to levy tax on "financial leasing services" under Entry 54, List II - Held: State Legislature have competence to levy sales tax on sales provided that the necessary concomitants of a sale are D present in the transaction and the sale is distinctly discernible in the transaction - This would not, however, allow the ,State to entrench upon the Union List and tax services by mcluding the cost of such service in the value of the goods - The value of taxable service u/s. 67 of the Finance Act, 1994 (as E amended) is income by way of interest/finance charges (measure of tax) which is not determinative of the character of the levy - Thus, while State Legislature is competent to impose tax on "sale" by legislation relatable to Entry 54 of List II of Seventh Schedule, tax on the aspect of the "services", F vendor not being relatable to any entry in the State List, would be within the legislative competence of the Parliament under Article 248 read with Entry 97 of List I of Seventh Schedule to the Constitution - Circular F.No. B.111112001-TRU dated 9. 7. 2001 - Notification No. 412006-Service Tax dated G 1.3.2006 - Finance Act, 1994 (as amended) - Finance Act, 2001. Article 246(1) - Scope of - Held: It confers exclusive power firstly, to make laws in respect of matters specified in Entries 1 to 96 in List 1. and, secondly, it confers the residuary H power of making laws by Entry 97, which provides "any other ASSOCIATION OF LEASING AND FINANCIAL SERVICE 383 COMPANIES v. UNION OF INDIA matter not enumerated in List II and List Ill including any tax A not mentioned in either of those lists" - The word "other" means "any subject of legislation other than the subject mentioned in Entries 1-96". Article 366(29A) - Object of - Held: Is to tax the composite price so that the full value of the hire-purchase price is taxed. Seventh Schedule, List II Entry 54 - Service tax - Held: B Is not a tax on material or sale - It is different and distinct from tax on sale of goods under Entry 54 List II - Finance C Act, 2001- Finance Act, 1994 (as amended)- Sale of Goods Act, 1930 - Service tax. Reserve Bank of India Act, 1934: s.451 - Financing activities - Equipment leasing and hire-purchase undertaken 0 as business by NBFCs - Held: Are financial activities
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