2025 (11) TMI 859 - AT - Service Tax

Assisting banks and financiers in evaluation and debt collection falls within Business Auxiliary Services under Section 65(19), tax upheld

M/s. Srivari Enterprises Versus Commissioner of GST & Central Excise, Chennai

CESTAT Chennai (AT) dismissed the appeal, holding that services of assisting banks and finance companies in customer evaluation and debt collection fall ... Taxability - Business Auxiliary services - assisting Banks and Finance companies in evaluating the customers and collecting payments from defaulters on behalf of the Banks - HELD THAT:- A reference is made to Section 65(19) of the Finance Act 1994, relating to Business Auxiliary Service, the authority has specifically omitted (i) to (vi) and extracted (vii) which means that to that extent of case being covered only under (vii). Hence, mere non-mentioning of specific (vii) does not absorb the liability. Reference made to the decision of this Bench in the Appellant’s own case for an earlier period [2018 (6) TMI 856 - CESTAT CHENNAI] wherein under similar circumstances the Bench had disagreed with the similar contentions of the Appellant and thereby upheld the demand. Nothing is placed here indicating any further Appeal being filed against the above order and hence the same has attained finality. Further, insofar as the other decisions/orders relied upon by the Appellant are concerned, it is found that the facts are different but however, in the Appellant’s own case for an earlier period, involving the very same issue with no change in the factual circumstances, the very same ratio is followed. There are no deviating circumstances being brought here to take a different view. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the activity of evaluating customers and collection of payments on behalf of banks and financial institutions constitutes a taxable 'Business Auxiliary Service' (BAS) under Section 65(19) of the Finance Act, 1994. 2. Whether a Show Cause Notice that alleges liability under BAS is vitiated for vagueness if it does not identify the specific sub-clause(s) of Section 65(19) relied upon. 3. Whether classification of the same activity under different sub-clauses of Section 65(19) at different stages of proceedings (original order and appellate order) renders the proceedings invalid as being beyond the scope of the Show Cause Notice. 4. Whether the activity falls within 'Support Services of Business or Commerce' (as defined under Section 65(104c) or equivalent provision) rather than BAS, thereby excluding BAS-based liability. 5. Whether penalty relief is available under the statutory provision relieving penalty where there is a reasonable cause for failure to pay tax. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Characterisation of activity as Business Auxiliary Service (BAS) Legal framework: Section 65(19) defines Business Auxiliary Service and lists illustrative sub-clauses describing auxiliary services rendered to business clients; BAS liability arises when services rendered to a client are incidental or auxiliary to the client's core activity. Precedent Treatment: The Tribunal relied on its prior decision in respect of the same assessee for an earlier period, where identical activities were held taxable under BAS and that decision stands final. The appellant relied on other authorities construing support services and the scope of BAS differently. Interpretation and reasoning: The Tribunal examined the nature of services - evaluation of customers and collection of payments - and concluded these services are rendered to banks/finance companies (clients) and are incidental or auxiliary to lending activity. The Tribunal found that the services are in furtherance of the clients' business of lending and therefore fall within the ambit of BAS (specifically as auxiliary services illustrated by the provisions read together). Ratio vs. Obiter: Ratio - The Tribunal's binding reasoning is that services rendered to banks/financial institutions for customer evaluation and recovery are auxiliary to lending and therefore taxable as BAS. Observational material regarding factual parity with an earlier final decision reinforces the ratio. Remarks about differences with other authorities are obiter in so far as they do not displace the controlling prior decision. Conclusion: The activity is taxable as Business Auxiliary Service; the appeal is dismissed on this issue following the Bench's earlier final decision on identical facts. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Validity of Show Cause Notice for failure to specify sub-clause of BAS Legal framework: Principles of natural justice require that a Show Cause Notice disclose sufficient particulars of the case against the assessee so as to enable fair response; specificity regarding legal classification is relevant where the absence causes prejudice. Precedent Treatment: The appellant contended that vagueness in the Notice is fatal and relied on several authorities supporting specificity. The Tribunal examined the Notice text and the subsequent reasoning in the adjudicating order. Interpretation and reasoning: The Show Cause Notice explicitly identified Section 65(19) (Business Auxiliary Service) and stated that the assessee's services of evaluating customers and recovery are covered. The Notice also recorded that the authority 'omitted (i) to (vi) and extracted (vii)' in its reasoning, indicating the scope relied upon. The Tribunal held that the Notice set out the essential material facts and linked them to BAS; mere non-mention of a specific sub-clause does not render the Notice vague where the activity and statutory head relied upon are clearly stated and the assessee was able to respond. Ratio vs. Obiter: Ratio - A Show Cause Notice which identifies the head of service and sets out factual basis for liability is not necessarily vitiated by omission of citation to a specific illustrative sub-clause where the assessee is not prejudiced. Observations about case-law emphasizing specificity are treated as distinguishable where factual matrix is adequate. Conclusion: The Show Cause Notice is not invalid for vagueness in the facts of this case; it provided sufficient particulars to satisfy natural justice requirements. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Permissibility of differing classification at different stages Legal framework: Principles require that the case made in adjudication remain within the scope of the Show Cause Notice and that classification should not be so altered during proceedings as to occasion prejudice; however, fine distinctions among sub-clauses under the same statutory head may be permissible if foundational facts remain unchanged. Precedent Treatment: The appellant argued the Department could not adopt different classifications (different sub-clauses under Section 65(19)) in the Show Cause Notice, original order and appellate order; the Tribunal reviewed authorities on amendment of grounds. Interpretation and reasoning: The Tribunal noted that the foundational allegation throughout was that the assessee rendered services to banks/financial institutions incidental to lending, and that the head of BAS remained constant. The Tribunal found no prejudicial change in the case presented: although the original order referenced one sub-clause and the appellate order another, the factual basis and statutory head were consistent. The Tribunal therefore treated the variation as not causing procedural unfairness in the matrix of this case. Ratio vs. Obiter: Ratio - Variation in specific illustrative sub-clauses under the same statutory head, without change to foundational facts, does not render proceedings beyond the Show Cause Notice if the assessee had adequate opportunity to meet the case. Remarks about limits of permissible reclassification are obiter to the extent they infer broader principles. Conclusion: The differing classification at various stages did not invalidate the proceedings in the present factual circumstances. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Whether activity falls under Support Services of Business or Commerce instead of BAS Legal framework: Definitions of 'Support Services' and 'Business Auxiliary Service' in the statute overlap in certain descriptions; legal characterization depends on the recipient of service, the nature of activity, and whether the service is provided to the client or to the client's customers. Precedent Treatment: The appellant relied on authorities construing evaluation of prospective customers as falling within Support Services; the Tribunal considered those authorities but placed weight on the Bench's earlier final decision in the same assessee's matter covering an earlier period. Interpretation and reasoning: The Tribunal distinguished the appellant's reliance by emphasizing that the services were rendered to the banks/finance companies (clients) and not to the clients' customers; therefore the activity is auxiliary to the clients' core business and fits within BAS as opposed to a different statutory head. Factual parity with the earlier final order led the Tribunal to follow that ratio. Ratio vs. Obiter: Ratio - Where services of evaluation and recovery are provided to banks/finance companies as clients and are auxiliary to lending, they constitute BAS rather than falling solely within an alternative 'Support Services' definition. Observations on differing fact patterns in other authorities are obiter and distinguished. Conclusion: The activity does not qualify as exclusively non-BAS support service in the present factual matrix; BAS classification is sustained. ISSUE-WISE DETAILED ANALYSIS - Issue 5: Availability of penalty relief under reasonable cause clause Legal framework: Provision relieving imposition of penalty where failure to pay tax is due to reasonable cause permits mitigation of penalty when assessee establishes such reasonable cause. Precedent Treatment: The appellant urged applicability of the reasonable cause provision to avoid penalty; the Tribunal noted the submission but did not record factual findings establishing reasonable cause distinct from liability. Interpretation and reasoning: The Tribunal's decision focuses on sustaining tax liability by following the earlier final decision on identical facts; there is no express finding accepting reasonable cause that would negate penalty. The Tribunal did not grant penalty relief in the result. Ratio vs. Obiter: Ratio - Absent a specific finding of reasonable cause on the facts, statutory relief from penalty is not available. Observations about the existence of the statutory relief as a principle are descriptive and obiter to extent not applied. Conclusion: Penalty relief under the reasonable-cause provision was not extended to the assessee on the record of this case. OVERALL CONCLUSION The Tribunal, following its earlier final decision on identical facts and finding no distinguishing circumstances, held that the evaluation and recovery services rendered to banks/finance companies are taxable as Business Auxiliary Service under Section 65(19); the Show Cause Notice and subsequent orders were not vitiated for lack of specificity or differential classification, and penalty relief was not granted. The appeal was dismissed.