By TIOL News Service

MUMBAI, DEC 11, 2017: 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 geta right over the vehicles and 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 is of the view that CENVAT credit 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.

In the matter of the Stay application filed before CESTAT, the appellant justified 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 that in view of the cited decisions there is merit in the contention of the appellant that the recovery agent's service is an Input service for the period 2007-08 to 2010-11. However, since w.e.f 01.04.2011 the definition of "Input service" had undergone a change and the expression "activity related to business" having been omitted, the recovery agent service may not qualify as ‘Input service' as the decisions may not apply, the Tribunal added.

Noting that the amount involved for the period 2011-2012 is Rs.19.25 lakhs, the CESTAT directed the appellant to make a pre-deposit of the said amount.

We reported this stay order as 2014-TIOL-494-CESTAT-MUM .

The appeal was heard in July 2017 and an order was issued recently.

After considering the submissions made by both sides, the Bench observed thus -

++ In our view the lending service is not limited to disbursing the loan but it includes the recovery of the said lended money which is one of the vital part of the overall activity of lending of money. Therefore, the service received for taking repossession of the vehicle by recovery agent is an input service which is used for the service of lending.

++ From the above definition (in rule 2(l) of CCR, 2004) it can be seen that any service used for providing output service is an input service. As discussed above, the service of taking repossession of the vehicle which is an activity in relation to recovery of the loan is used for overall service of lending. Therefore as per the main part of the definition, the service of recovery agent received by the appellant is an input service.

++ The appellant also claimed that his service is related to ‘Security' which is specified in the inclusion part of the definition as one of the input service. We find that the vehicle on which the appellant have given the loan is hypothecated with the appellant as the ‘security'. Therefore, in connection to the recovery of the loan this vehicle is taken under repossession, therefore, this service is clearly covered under the definition of ‘Security' which means "a thing deposit or pledged as a guarantee of the fulfillment of an undertaking or the repayment of the loan, to be forfeited in case of default" .

++ In view of this definition, the service of taking repossession of the vehicle from the borrower is a part of security service which is specifically included in the definition of input service. For this reason also the service of repossession provided by the recovery agent to the appellant is an input service. Therefore, the appellant is clearly entitled for the cenvat credit on such inputs service.

++ As per our above discussion, the appellant is entitled for the cenvat credit on the service of repossession of vehicle provided by the various recovery agent to the appellant against the output service of the appellant i.e. lending of money (Banking and Other Financial Service), accordingly the impugned order is set aside.

Incidentally, the appellant also submitted that the amount of recovery charges was recovered by the appellant from the individual borrowers at the time of giving repossession of the vehicle in case the borrower has repaid the amount and on this amount the department had confirmed service tax demand, appeal against which is pending before the Tribunal. The Bench remarked that the same was not the subject matter of the instant proceedings and hence could not be taken into consideration for deciding the issue on merit involved in the present case.

In fine, the appeal was allowed.

In passing - consequential relief:

+ Prior to 01.04.2011

2(l) "Input service" means any service, -

(i) used by a provider of taxable service for providing an output service, or

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;

+ Substituted by notfn. 3/2011-CX (NT) dated 01.03.2011 w.e.f 01.04.2011

(l) "input service" means any service, -

(i) used by a provider of taxable service for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes services,-

+ "Security" Dictionary meaning -

noun:

1 . the state of being free from danger or threat.

2 . a thing deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.

(See 2017-TIOL-4355-CESTAT-MUM)