Customer-sourcing for a bank is taxable when it is a service to the bank, not a service on behalf of borrowers.

A customer-sourcing agent engaged by a financing bank was treated as rendering service to the bank itself, because procuring prospective borrowers was a distinct promotional activity separate from the bank's financial service to customers. In the absence of a tripartite agreement, appointment letter, or evidence of any obligation undertaken towards borrowers, the agent could not claim the benefit of Notification No. 14/2004-ST. The activity was therefore held taxable as service to the bank, and the exemption for service rendered on behalf of the bank was unavailable.

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Issues: Whether a customer-sourcing agent engaged by a financing bank, who procures prospective borrowers for the bank, is liable to service tax as a service provider to the bank and whether exemption under Notification No. 14/2004-ST dated 10.09.2004 was available.

Analysis: The activity was treated as a service rendered to the financing bank and not as a service rendered on behalf of the bank to the bank's borrowers. The arrangement disclosed two distinct and independent services: first, promotion of the bank's finance business by sourcing customers, and second, the bank's own financial service to those customers. In the absence of any tripartite agreement, appointment letter, or evidence of an obligation undertaken by the respondent towards the borrowers, the respondent could not be brought within the notification-based exemption meant for a different category of claimants.

Conclusion: The respondent was liable to service tax on the activity of sourcing customers for the bank, and the benefit of Notification No. 14/2004-ST dated 10.09.2004 was not available.

Final Conclusion: The first appellate order was set aside and the Revenue's appeal succeeded.

Ratio Decidendi: Where an entity merely sources customers for a bank and renders service to the bank itself, without undertaking any obligation to the borrowers or acting on behalf of the bank through a tripartite arrangement, the activity is taxable and an exemption meant for service on behalf of the bank is unavailable.

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