Leasing of Oxygen Plant Equipment by Praxair India Not a Financial Lease, Not Taxable as Financial Service: CESTAT

The Delhi bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that the leasing of an oxygen plant and equipment by Praxair India does not constitute a "financial lease" and is therefore not taxable as a "financial service" under the service tax regime. The revenue department had contended that the lease arrangement was a financial lease and demanded service tax under the category of 'Banking and Other Financial Services'. However, CESTAT analyzed the terms of the agreement and concluded that it was an operating lease, not a financial one. The tribunal noted that Praxair retained the ownership and risks associated with the equipment and the lease period did not cover the major part of the asset's life. As the arrangement did not transfer substantially all the risks and rewards incidental to ownership, it could not be classified as a financial lease, thus setting aside the tax demand.