Assignment of Loan Income Not Taxable as Recovery Service Under Service Tax Rules

CESTAT dismissed the Revenue's appeal, ruling that the respondent's "income from assignment of loan" (excess interest spread between borrower payments and assignee yield) is not taxable as a recovery service. The Tribunal determined that when the respondent sold/assigned loan portfolios to banks/financial institutions, they continued collecting payments from borrowers as the original lender, not as a recovery agent. While the respondent paid service tax on nominal fees received under separate collection agency agreements, the interest income retained was properly exempt under Rule 6(2)(iv) of the Service Tax (Determination of Value) Rules, 2006. The Tribunal cited its previous ruling in Sundaram Finance Ltd., confirming these transactions were principal-to-principal with no service element. .....

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