9911796707
TMI Blog2025 (3) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... nbanked areas of the country. It is primarily engaged in providing priority sector loans such as loans for agricultural purposes, loans to women entrepreneurs and other MSMEs. 2.1. As per the industry practice, the portfolio of loan comprising of loans provided to various small borrowers is sold to the banks/ financial institutions (hereinafter referred to as 'the assignee') by entering into assignment agreements, for the purpose of raising funds, in terms of the guidelines issued by RBI from time to time. Upon assignment of such loan portfolio, the Respondent immediately receives the principal amount of the loan portfolio or the amount as may be agreed with the assignee and the asset pool is removed from the books of the Respondent as the same becomes the property of the assignee to which the portfolio has been assigned. The profit arising pursuant to such assignment of loan is recognized in the books of accounts of the Respondent as 'Income from assignment of loan' which primarily comprises of excess interest spread, i.e. the difference between the interest amount payable by the borrowers in respect of the loans and the yield payable to the assignee. 2.2. It is pertinent to not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present appeal has been filed before the Tribunal against the dropping of the demand, by the Ld. Commissioner. 4. The Ld. Special Counsel appearing on behalf Revenue submits that in the impugned order, the ld. adjudicating authority has dropped the demand of Rs 6,10,44,014/ and confirmed the service tax demand of Rs 9,57,116/ including irregular credit of Rs 2,320/ under proviso to Section 73 (2) of the Finance Act, 1994 and Rule 14 of the CENVAT Credit Rules, 2004 for 2008-09 and 2010-11. 3.1. The Ld. Special Counsel for the Revenue also submits that the ld. adjudicating authority has erred in treating income as interest. He states that once the respondent assigns the loans to the bank, it ceases to be the lender; after that, the borrower bank has the responsibility to realise the Principal and interest. Therefore, it is his contention that once the loans are assigned, the differential income that the Respondent retains cannot be termed interest on the loan; it is the servicer's fees for providing collection/recovery agent service retained. In view of the above submissions, he contends that the ld. adjudicating authority therefore has erred in treating the "income from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as taxable service as per Section 65 (105) (zzzl) of the Finance Act, 1994. The Respondent's attempt to treat the assignment of loan transaction is misplaced. (v) Show Cause Notice is a valid one. (vii) The Department has correctly invoked an extended period of limitation as the fees mentioned in the contract were manipulated to evade tax; they were too nominal to accept the correct value for the service provided. 6. On the ground raised by the Respondent that the Show Cause Notice is vague, the Ld. Special Counsel representing the Revenue submits that in the Show Cause Notice dated 23.10.2013, at page 6, it has been categorically mentioned that service tax is payable on the gross value booked by M/s BFSPL in their P&L Account as "income from assignment of loans" for providing service as recovery agent to the various banks. He pointed out that Section 65(105)(zzzl) of the Finance Act 1994 imposed service tax on "Recovery Agent Services" w.e.f. 01.05.2006 as mentioned below: "Any service provided or to be provided to a banking company or a financial institution, including a non-banking financial company or any other body corporate or a firm, by any person in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing given are all factors that must be examined to ascertain whether any prejudice was. caused, resulting in an arbitrary and unjust decision. The principle of prejudice resulting from vagueness and uncertainty has to be examined pragmatically and reasonably." 6.2. Moreover, it is contended by the Revenue that since the Show Cause notice has spelt out why the respondent has provided services as a recovery agent of the bank and the amount of service tax it was required to pay, the SCN is valid given the ITC judgment cited above. Accordingly, it is contended that the respondent's reliance on Bank of Baroda vs Commissioner of C.Ex., Jaipur -I [2014 (35) STR 359 (Tri- Del)] is misplaced, wherein SCN has not spelt out the taxable category under which demand is made. 6.3. On the issue raised by the Respondent that the Assignment of the loan transaction is a sale transaction not leviable to the Service tax, the Ld. Special Counsel representing the Revenue submits that the respondent's contention that the case involves only the assignment of the loan transaction is incorrect; the respondent in the present case is not merely transferring loans but is actively servicing and coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate or a firm, by any person, in relation to recovery of any sums due to such banking company or financial institution, including a non-banking financial company, or any other body corporate or a firm, in any manner. 6.6. From the above definition, he submits that it is clear that the service provided by the respondent to the bank was a taxable service falling under Section 65(105)(zzzl) of the Finance Act, 1994; from the agreement executed, it is clear that the respondent served the bank as a recovery agent; the nominal collection fee was too low and did not reflect its value and this is a device arranged by the respondent to avoid tax liability. It is also stressed by the Ld. Special Counsel for the Revenue that the nominal fee of Rs 100- Rs 1,00,000/shown in the agreement does not reflect the true nature of the compensation for the services rendered, evident from the tables shown on internal page 4 of the Show Cause Notice. He argued that when the contractual transaction reflected does not show the true nature, the actual transaction should take precedence over the legal form and this is pertinent when the SCN provides evidence of harsh conditions in case of default by the Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed with the assignee and the asset pool is removed from the books of the Respondent as the same becomes the property of the assignee to which the portfolio has been assigned. The profit arising pursuant to such assignment of loan is recognized in the books of accounts of the Respondent is recorded as 'Income from assignment of loan' which primarily comprises of excess interest spread, i.e. the difference between the interest amount payable by the borrowers in respect of the loans and the yield payable to the assignee. Since the borrowers are not party to such assignment agreement and also for the purpose of commercial and administrative convenience, the Respondent is entrusted with the responsibility to collect the instalments against the loan from the borrowers. The Respondent has entered into separate 'Collection agency agreement' with the assignee for the same, which is ancillary to the main contract of assignment. Further, a nominal fee has been earmarked for the activities covered under the 'Collection Agency agreement'. The Respondent is paying service tax on the nominal fees received for collection of the amount. However, the Revenue is of the view that the excess intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolved in this transaction and the interest amount retained by the Respondent cannot be considered as 'consideration' towards rendering the service of collection of the principal and interest for the assignees. 9.4. Further, we observe that the issue is no longer res integra as a similar issue has already been examined by the Tribunal at Chennai in the case of Commissioner of Central Excise & Service Tax, LTU, Chennai v. Sundaram Finance Ltd. & vice-versa [2017 (11) TMI 1002 - CESTAT, Chennai=2018 (10) G.S.T.L. 580 (Tri. - Chennai)]. The relevant observations of the Tribunal in the said case are reproduced below: - "6. The appeal by the assessee is almost on similar issue for a different period. However, the main difference in the present appeal is that instead of selling the asset of future receivables to a Trust, the same is given to ICICI bank. The bank and the appellant-assessee entered into another agreement which provided the appellant-assessee to collect various cheques from the identified obligors (loan clients) and to deposit in a prescribed schedule with the bank. For this, some fee is paid to the appellant- assessee. The Revenue entertained a view that the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not in agreement with the proposition to identify the appellant-assessee as collecting agent of ICICI for BAS. Such collection agents are generally dealing an amount or instrument which is due to an institution from a third party for which the agent acts as a middleman. The present facts of the case makes it clear that instrument or amount is intended and remitted to the appellant-assessee by way of cheque. The said amount has to be transmitted to ICICI bank as per the agreed schedule towards servicing of already obtained consideration by the appellant-assessee. Hence there is no tripartite arrangement. The role of the appellant-assessee is mainly with reference to discharging the obligation of servicing the amount already received. All these conditions are put by ICICI bank with reference to various loans extended to different identified obligors. This by itself does not make the appellant-assessee as a collection agent of the amount from the identified obligors to be paid to the ICICI bank. We may note here that even in case of non-collection of such amounts from obligors, the appellant-assessee has to discharge the amount due to ICICI bank, from their resources. This will only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order is reproduced below: - "3.6. Discussion on tax liability on the differential interest amount received as Recovery Agent: The SCN alleges that 'Income from assignment of loans' which had been booked in the P&L accounts are nothing but the remuneration from various banks for recovery of loans purchased by the banks along with interest from the ultimate borrowers. Hence service tax is payable on the gross value which have been booked by the assessee in their P&L Account as 'Income from assignment of loans' for providing the service as Recovery agent to various banks. In support of the argument the SCN has placed a lot of data showing the amount received by the assessee from the banks. I have scrutinized the data and narration against them to explain their status. I have noted that the SCN has all along recognized the collections by the assessee from the ultimate borrowers as loan and interest amounts. The differential interest retained by the assessee has been reflected as 'Gain by Bandhan'. The SCN alleges that such 'Gain' reflected as Income from assignment of loans' in the P&L accounts are nothing but the remuneration from various banks f ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
