By TIOL News Service

MUMBAI, APR 02, 2014: THE appellant is engaged in providing Banking and Financial Service and Insurance Auxiliary Service. They are also in the business of lending money for purchase of vehicles to their customers. When the customers who have taken the money default in repayment of loan, they have the right over the vehicles and they take possession of these vehicles by engaging the services of recovery agents. These recovery agents seize the vehicles and handover the same to the appellant and recover seizing charges.

The recovery agents discharged Service Tax on seizing charges under the category of Business Auxiliary Services.

The appellant took CENVAT Credit of the service Tax paid on the seizing charges during the period 2007-08 to 2011-12 amounting to Rs.95,25,997/-.

The Revenue was of the view that CENVAT credit of the Service Tax paid on the seizing charges is not permissible under the law inasmuch as the seizing of vehicles is not an input service for the lending activity undertaken by the appellant.

Accordingly, a SCN was issued for recovery of the CENVAT credit allegedly wrongly availed of Rs.95,25,997/- for the period 2007-2008 to 2011-12 along with interest thereon and also proposing to impose penalties.

The Commissioner of Central Excise, Pune-I did the rest.

The appellant is before the CESTAT and justifies the credit taken by placing reliance on the decisions in Coca Cola India Pvt. Ltd. vs. Commissioner of Central Excise, Pune-III - 2009-TIOL-449-HC-MUM-ST and Ultratech Cement Ltd. - 2010-TIOL-745-HC-MUM-ST.

The Revenue representative submitted that the activity of recovery is after the lending of money has taken place and, therefore, it cannot be construed that the recovery agent has been engaged for the lending activity undertaken by the appellant and, therefore, the services rendered by the recovery agent cannot constitute input service as defined under Rule 2(l) of the CENVAT Credit Rules. Inasmuch as since the order passed by CCE, Pune-I is sustainable in law, therefore, the appellant be put to terms.

The Bench observed -

"8.1 The scope of input service as defined under Rule 2(l) has been examined at length by the jurisdictional High Court of Bombay in Coca Cola case and Ultratech Cement (supra) and the Hon'ble High Court has observed that the expression activity relating to business in the definition of input service is very wide and any activities which are in relation to the business would be an eligible input service. Therefore, there is merit in the contention of the appellant that the recovery agent's services engaged by them is an eligible input service for the period 2007-08 to 2010-11. However, w.e.f. 1.4.2011, the definition of input service has undergone a change and the expression ‘activity related to business' has been omitted and therefore, for the period after 1.4.2011, the ratio of the decision of the Hon'ble High Court cannot apply and before that date, the recovery agent's service is prima facie an eligible input service. The Service Tax demand for the period 2011-12 after the amendment to the definition of input service amounts to Rs.19,25,580/-."

Holding that the appellant has not made out a case for complete waiver of pre-deposit, particularly for the period 2011-12, the Bench directed them to make a pre-deposit of Rs.19.25 lakhs within a period of four weeks and report compliance.

Incidentally, the Bench also condoned the delay of 110 days in filing the appeal by considering the reasons offered by the appellant as ‘satisfactory'.

(See 2014-TIOL-494-CESTAT-MUM)