2015 (8) TMI 797 - AT - Service Tax

Waiver of pre deposit - demand of service tax on differential interest - It was taken note of by the Revenue that appellants grant loans to the borrowers and build portfolio of loan. These portfolios of loans are sold to other financial institutions by assigning the entire asset. - As per this deed, SKS has two roles namely the Assignor and the Servicer and HDFC is the Assignee . - Microfinance lending activities Held that - when the assignee appoints a different person as a servicer if service tax is payable, question arises why there should be a difference if the assignee himself acts as a servicer. We do not find any logic in taking a view that in such a situation assignee is not liable to pay tax. In the normal course when a loan is assigned, the consideration is paid by the assignee and that is the end. In this case the assignor collects the principal and interest and since they have received a loan from the bank equal to the amount or more than the amount of portfolio transferred, the assignee or the servicer pays the principal and the interest charged by the bank to the bank. In case where the servicer is a different person, the appellant will be simply paying back the loan with interest charged by the bank and will have nothing to do with the rural women who have received the loan. - appellant does not have a prima facie case on merit - Partial stay granted.

Summary

Issues:
1. Whether differential interest received by the appellant is liable to service tax.
2. Whether the demand for service tax for the period from 2007 to 2012 is justified.
3. Whether the extended period for invoking penalty is applicable.
4. Whether interest and penalty imposed are tenable.

Analysis:
1. The case involves determining the liability of the appellant to pay service tax on the differential interest received as consideration for acting as a servicer. The Revenue argues that the appellant should pay service tax on the differential interest, considering it as a Recovery Agent Service. The appellant contests this, stating that the transaction involves an actionable claim and residual income like interest cannot be taxed as per the Service Tax Rules. The appellant also argues that the consideration for acting as a servicer is identifiable in the assignment agreements, and consensus-ad-idem between the parties is crucial. The Tribunal notes the nature of the transaction and the differing viewpoints on the taxability of the differential interest.

2. The demand for service tax amounting to &8377; 34,24,93,571/- for the period from 2007 to 2012 is contested by the appellant. The appellant raises various grounds challenging the tax demand, including the nature of the transaction as an actionable claim, the time limitation for issuing the notice, and the absence of essential ingredients for invoking the extended period under the Finance Act. The Tribunal considers the arguments presented by both sides and acknowledges the complexity of the issue, requiring detailed examination during the final hearing.

3. Regarding the applicability of the extended period for invoking penalty, the Tribunal finds that a more comprehensive evaluation of all aspects of the matter is necessary. The appellant is directed to deposit a specific amount, and compliance within the stipulated time is required. The Tribunal grants a stay against recovery during the appeal's pendency, subject to the appellant's compliance with the deposit requirement.

4. The tenability of the interest and penalty imposed is also questioned by the appellant. The Tribunal considers the financial position of the appellant, the arguments presented, and the nature of the dispute in evaluating the overall case. The Tribunal directs the appellant to make a specified deposit and grants a waiver for the pre-deposit of the balance dues, subject to compliance with the deposit requirement and stay against recovery during the appeal process.

In conclusion, the judgment addresses the complex issues surrounding the liability of the appellant for service tax on the differential interest, the justification for the tax demand, the applicability of the extended period for penalty, and the tenability of interest and penalties imposed, providing detailed analysis and directions for further proceedings.