HDFC Bank Ltd. Vs Commissioner of Cen. Excise (CESTAT Mumbai)
The CESTAT Mumbai considered whether amounts received by HDFC Bank from vehicle manufacturers/dealers and accounted for as “subvention income” were liable to service tax under the category of “Business Auxiliary Service” under Section 65(19) read with Section 65(105)(zzb) of the Finance Act, 1994.
The proceedings arose from an EA-2000 audit for the period 2008-11. HDFC Bank was engaged in vehicle finance and had arrangements with vehicle manufacturers/dealers under which loans were provided to vehicle purchasers at nil or reduced rates of interest. The manufacturers/dealers paid amounts to the Bank, recorded as subvention income. The Bank also jointly issued advertisements with vehicle dealers and availed CENVAT credit on its share of advertisement expenses.
The Commissioner of Central Excise, Thane-II confirmed service tax demand of Rs 36,26,02,574 under Section 73(2), along with applicable interest under Section 75. Penalties of an equivalent amount under Section 78 and penalties under Section 77(2) for incorrect ST-3 returns were also imposed. The show cause notice dated 6 February 2013 had proposed recovery under the proviso to Section 73(1), together with interest and penalties.
HDFC Bank contended that the subvention income represented interest on loans and was not consideration for any taxable service. It submitted that the manufacturer/dealer could pay the interest component instead of the borrower and that nomenclature could not alter the nature of the transaction. The Bank also argued that it was promoting its own financial products rather than the business of vehicle manufacturers/dealers, that there was no service-provider/service-recipient relationship, and that the extended period of limitation and penalties were not sustainable.
