2015 (12) TMI 75 - AT - Service Tax

Demand of service tax - BAS - Collection of EMI on behalf of bank - whether when the appellants sold the loan portfolio and collected the EMI amount and gave an assurance that they would be collecting the EMI, the appellants are liable to pay Service Tax on the discount given by the appellants to the bank at the rate of 10% of the sale consideration received by the appellant from the banks - Held that - in this case both bank as well as the assessee have not recorded anything as to the cost attributable to the collection of EMI in the agreement. It is also not possible to quantify what is the amount spent by the appellants for collecting the EMI. In our opinion 10% fixed by the Commissioner for arriving at the cost of collection of EMI is arbitrary and cannot be sustainable. At the same time we are unable to agree with the submission that appellant is not liable to pay any Service Tax towards the cost of collecting of EMI on the ground that there is no such cost at all. In our opinion when EMI is collected by the appellant from the borrower, it amounts to providing business auxiliary services to the banks and therefore appellant s contention that there is no service at all and no cost has been collected by them towards collecting EMI cannot be accepted. Matter remanded back for quantification of demand with the help of professional cost accountant - Decided partly in favour of assessee.

Summary

Issues:
1. Liability to pay Service Tax on discount given by appellants to banks when selling loan portfolios.
2. Determination of the cost of collection of EMI for the banks.
3. Remand of the matter for fresh adjudication.

Analysis:
1. The primary issue in this case pertained to the liability of the appellants to pay Service Tax on the discount provided to banks when selling loan portfolios. The appellants had sold loan portfolios to banks at a discount, with an agreement that they would be responsible for collecting EMIs. The dispute arose regarding whether the appellants should pay Service Tax on the 10% discount given to the banks. The Commissioner had determined this 10% without providing any basis for the calculation in the order or show cause notice. The total Service Tax demanded was &8377;2,46,09,824, covering two show cause notices issued by the Revenue, along with penalties and interest.

2. The argument presented was that the 10% of the sale consideration represented the cost required to clear the EMIs, as the appellants were responsible for EMI collection. However, it was observed that neither the bank nor the appellants had documented the cost associated with EMI collection in the agreement. The Tribunal found the 10% fixed by the Commissioner arbitrary and unsustainable, but disagreed with the contention that no Service Tax was payable for EMI collection. The Tribunal decided to remand the matter, directing the appellants to engage a professional cost accountant to determine the actual cost of EMI collection for the banks during the relevant period. The Tribunal emphasized the importance of quantifying this cost for accurate adjudication of the Service Tax liability.

3. Consequently, the Tribunal set aside the impugned order, waived the pre-deposit requirement, and remanded the matter to the original adjudicating authority for fresh adjudication. The appellants were instructed to submit the cost certificate from a qualified cost accountant within three months for further assessment of the Service Tax liability. The Tribunal clarified that the appellants would have the opportunity to present their case during the fresh adjudication. It was highlighted that the remand was specifically for the determination of the cost of collecting EMIs, and no opinion was expressed on other potential issues in the case.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Tribunal's decision to remand the matter for further assessment based on the determination of the actual cost of EMI collection.