Service tax applies to leasing services

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Does parliament have the power to levy a service tax on equipment leasing and hire-purchase services or is such power vested only in the states (under entry 54 of list II of the constitution)?

Answering this question in favour of parliament in Association of Leasing & Financial Service Companies v Union of India and others the Supreme Court recently held that the service tax is neither on the material nor on sale, but rather on the financing and funding of the equipment or asset. As such it fell within the meaning of the words “financial leasing services” in section 65(12) (a) (i) of the Finance Act, 1994.

The Association of Leasing & Financial Service Companies was aggrieved by the inclusion of hire-purchase and leasing services within the service tax net.

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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@vsnl.com. Readers should not act on the basis of this information without seeking professional legal advice.

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