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2019-VIL-229-CESTAT-CHE-ST

SERVICE TAX CESTAT Cases

Service Tax - Financial Lease or Operating Lease transaction - The Department of the view that Operating Lease entered into by the appellant is only a misnomer and that they are actually Financial Leases, which are subject to levy of service tax – demand of service tax along with interest and imposition of penalties - HELD – The clauses of lease agreement show that the ownership rests with the lessor (the appellant) and after determination of the lease in an Operating Lease, the lessee has to return the equipment/vehicle to the lessor. The lessee is not entitled to own or does not have an option to own the asset at the end of the lease period, which is the distinguishing feature between an Operating Lease and a Financial Lease - the financial statements of the appellant-company, as per Accounting Standards (AS-19), the Financial Lease is shown as current assets. Further, the Operating Lease is shown under the category of fixed assets. This is because, the equipment which are given on lease under the category of Operating Lease always remain in the ownership of the lessor (appellant-company) - We are therefore convinced that as per the documents, the transactions fall under the category of Operating Lease only. The allegation of the Department that the agreements are actually Financial Lease and that Operating Lease is only a misnomer, is factually wrong - the allegation by the Department that the lease agreements are in the nature of Financial Leasing, is incorrect and hence, the demand cannot sustain. The impugned Order is set aside and the appeals are allowed

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