2017 (11) TMI 658 - AT - Service Tax

CENVAT credit - input services - Case of Revenue is that the appellant is engaged in providing output service i.e. lending of loan. The activity of seizing of vehicle by the recovery agent appointed by the appellant is not an input service for lending of loan to the customer, therefore the service does not fall under the category of input service, accordingly cenvat credit was disallowed - Held that - 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. 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. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Disallowance of cenvat credit on service tax paid by recovery agents for seizing charges.
2. Determination of whether the seizing activity of the vehicle is an input service for lending of loan.
3. Applicability of cenvat credit on service charges related to seizing of vehicles by recovery agents.

Analysis:
1. The appellant, engaged in Banking and Other Financial Services, availed cenvat credit on seizing charges paid to recovery agents. The disallowance was based on the argument that seizing activity is not an input service for lending of loans. The appellant challenged this disallowance through an appeal.

2. The appellant contended that seizing the vehicle is an essential part of the lending service, as the vehicle serves as security against the loan. The recovery of the lended money includes the activity of seizing the hypothecated vehicle, making it a direct input service. The appellant also argued that the seizing activity is part of the security service, which falls under the definition of an input service. Previous judgments were cited to support this argument.

3. The Revenue maintained that the seizing service is not linked to lending money and, therefore, does not qualify as an input service. They argued that there is no service tax on lending or interest amounts, only on processing fees. The lack of nexus between the seizing charges and the output service of lending was emphasized to deny the cenvat credit.

4. The Tribunal analyzed the nature of the appellant's services, emphasizing that lending includes not only disbursing loans but also recovering the lended money. Considering the definition of input service under Cenvat Credit Rules, the Tribunal concluded that the seizing activity by recovery agents is an input service directly related to lending. The vehicle, serving as security, falls under the definition of security service, making the seizing activity eligible for cenvat credit. The pending proceedings regarding service tax on seizing charges recovered from borrowers were deemed separate from the current appeal. The Tribunal allowed the appeal, granting the appellant cenvat credit on the seizing charges related to the lending service.

This detailed analysis demonstrates the Tribunal's thorough consideration of the issues raised regarding cenvat credit on seizing charges paid to recovery agents in the context of lending services provided by the appellant.