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TMI Blog2020 (3) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... to levy a tax on the consideration earned by the bank is in breach of the exemption afforded to interest. It would also appear that the primary purpose of providing such liquidity is to make the derivative issued by special purpose vehicles more attractive to investors and, in the process, enhance the value to be realized by the bank on sale of the securitized asset. Consequently, it would appear that the beneficiary of the facility is not the special purpose vehicle but the appellant themselves. This clearly does not conform to the concept of service which must, necessarily, be rendered to another person. Rendering of cash management services - HELD THAT:- It is worth noting that the transfer to special purpose vehicle is not of the loan customers of the appellant but of the assets including such loan accounts. The relationship between the bank and its loan customers does not alter; all that the bank has undertaken, by affording liquidity facility , is to ensure that the collections that would otherwise have accrued to the bank is transferred at the specified intervals to the special purpose vehicle and the facility extended is the contractual undertaking to do so - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compense from its customers and its depositors. The principal amount outstanding constitutes the asset of the operation. Deposits finite as they be, are strategically dispersed among the assets to minimise the risk devolving on the bank. Keeping pace with the complexity of macroeconomics, and particularly in developing and welfare state economies, such financial institutions have no option but to achieve an optimal balance between lucrative consumer lending and long-term industrial, as well as priority sector, demands and targets. In furtherance of this objective, the banking sector has devised various models and instruments; one of these, and our concern in the present dispute, is securitization of such consumer loans. 3. The present demand arises from the alleged non-payment of tax under Finance Act, 1994 on the receipts generated from securitization agreements entered into by the appellant prior to February 2006 that continued to subsist during the period of dispute. Essentially, securitization is the pooling of assets underlying the loans for transfer to special purpose vehicles which is then securitized by the latter as pass through certificates to participant investors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge of tax liability on receipt basis, liability does not exist. It is also contended by him that the demand has been made under the authority of section 72 of Finance Act, 1994 on an erroneous interpretation of its scope. Learned Authorized Representative drew our attention to the findings of the adjudicating authority to the effect that the disproportionate increase in the fees for collection undertaken on behalf of the special purpose vehicle in transaction after February 2006 clearly is the standard for consideration charged by the bank and which can be inferred to have been included in the price paid by the special purpose vehicle to the appellant. He argued that, in such circumstances of non-inclusion of the consideration for service in the periodical discharge of liability, the failure to reflect the correct assessable value in the half yearly returns warranted recourse to section 72 of Finance Act, 1994 which authorises resort to best judgement assessment. 8. In support of the contention on behalf of the appellant that tax liability did not arise on accrual of consideration till April 2011, Learned Chartered Accountant placed reliance on the decision of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y us. The demand has been brought to bear by recourse to section 72 of Finance Act, 1994. It is, indeed, moot if the Commissioner of Central Excise, as adjudicating authority, is empowered by statute to invoke this particular provision when section 73 of Finance Act, 1994 enables recovery of tax that has been, inter alia, short-paid or not paid. The latter is encompassed within a restrictive framework to mitigate the uncertainties implicit in absence of such restraints and, coupled with the lack of evidence of suppression or misrepresentation, leads to the unavoidable inference of an attempt to overcome that very constraint. It is not in dispute that the appellant has been filing returns at the prescribed intervals and it would also appear that the allegation of bundling of consideration-both for the sale of underlying assets and for the performance of agency function-founded, as it has been, on comparison with subsequent commercial practice may not have been amenable to eliciting of satisfactory level of evidence for invoking the extended period of limitation permissible under section 73 of Finance Act, 1994. In the scheme of taxation envisaged in Finance Act, 1994, the statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... writ jurisdiction, decided the matter of National Building Construction Company Ltd v. Union of India Others [order dated 16th November, 2008 in WP (C) 1144/2016] and, while distinguishing the provisions of Income Tax Act, 1961, observed that 17 Our attention has not been drawn to any provision in the Fin Act, applicable provisions of the CE Act or the Rules for taking up the service tax returns for scrutiny and regular assessment as is envisaged under the provisions of the Income-tax Act referred to in paragraph 16 above. xxxx 22. Thus, as per Section 73, unless payment is made in terms of sub- section 3 and 4 thereof, the starting point for proceedings for adjudicating assessment is the issue of the show cause notice under Section 73 (1) of the Fin Act. It is not the service tax return per se, but the show cause notice which is adjudicated and decided. This is the procedure prescribed by the statute for recovery of service tax in case of non levy, non payment, short levy, short payment and erroneous refund.... xxxxx 25... The expression best judgement assessment in tax enactments refers to fair estimate and reasonable determination of the taxable am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged for the relevant period. As it is inextricably linked to the return, and is shorn off any limiting framework other than accepted principles of natural justice, it can only be inferred as authority conferred on the officials before whom such returns are filed. Scrutiny assessment, though no longer explicitly mandated as obligatory, continues to remain as an option to be exercised. The deployment of the expression Central Excise officer , spanning many levels in the hierarchy listed in section 2(b) of Central Excise Act, 1944 as it does, in section 72 of Finance Act, 1994 can only be limited to those who are ordinarily concerned with the returns filed by an assessee. Any other officer doing so would merely be adopting the authority of a lower level conferred by section 12E of Central Excise Act, 1944 and must, therefore, operate within the boundaries annexed to such level including declaration of the appellate hierarchy in the adjudication order. The impugned order, by designating the corresponding appellate jurisdiction, claims statutory backing of the adjudicatory jurisdiction of Commissioner of Central Excise and thus impliedly moves from scrutiny assessment to adjudicatory a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the financial market. The guidelines themselves pay considerable attention to ensuring true sale with attendant consequence of placing such assets beyond the reach of creditors of the bank. Implicit in such distancing of the securitization of underlying asset is the easier marketability of the instrument enabling the enhancement of compensation for undertaking collection services. In this regulatory context, the gap between the compensation does not appear to be disproportionate enough to warrant suspicion of concealment before 2006. The inference drawn from the presumption by the adjudicating authority cannot, therefore, sustain. 16. The second component in the dispute pertains to the liquidity facility incorporated in the contracts entered into by the appellant with the special purpose vehicles for transfer of assets underlying the securities. Pointing out that the guideline of Reserve Bank of India, issued on 1st February 2006, is specifically intended to cover a temporary shortfall in the collection received from loan consumers at the specified intervals and clearly precludes the utilisation of such facility for meeting recurring expenses, for funding acquisition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords, the bank is merely fulfilling such obligation and not rendering service to any other person. 19. We also find nothing on record in the impugned order to substantiate the finding that the claim of the appellant herein of having extended an overdraft facility on which interest is chargeable to the extent of availment is not tenable on facts and law. In the absence of such legally valid conclusion, the claim of the appellant does not merit disregard. Even if, while enhancing the marketability, the securitization terms are made attractive for better returns to the appellant, the special purpose vehicle too finds itself blessed with brighter prospects of attracting investors for the pass through certificates a service with the potential of taxability under some other enumeration in section 65(105) of Finance Act, 1994 - there is neither notice nor finding on the taxability or consideration for a valid confirmation of demand. 20. In view of our findings supra, the levy of tax and imposition of detriment in the impugned order is without authority of law. We, therefore, set aside these and allow the appeal. (Order pronounced in the open court on 14/01/2020) - - Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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