2026 (3) TMI 1070 - AT - Service Tax

Input service classification of recovery and repossession services: qualifies for Cenvat credit when directly used in providing lending services.

Rule 2(l)'s principal definition of 'input service' remains the statutory test after the 01.04.2011 amendment; the decisive inquiry is whether a service ... CENVAT credit availed on services of recovery agents (including repossession activities) - reverse charge on services - definition of “input service” with effect from 01.04.2011 - ​​​​​​​Whether the services of recovery agent, qualifies as ‘input services’ under Rule 2(l) of the Credit Rules after the amendment to the definition of ‘input service’ w.e.f. 01.04.2011. Input service used for providing an output service - recovery agent services as integral to lending - HELD THAT:- The Court held that the substantive 'means' part of the definition of input service-any service used by a provider of taxable service for providing an output service-remained unchanged after the 01.04.2011 amendment; changes were confined to the illustrative 'includes' part. The determinative test is whether the service is used in providing the output service. Timely recovery is integral to the lending service because without recovery mechanisms lending cannot be practically provided. Services rendered by external collection or recovery agencies thus have a direct and integral nexus with the output service of money lending and qualify as input services. The Tribunal relied on the coordinate bench decision in M/s. Bajaj Finance Ltd.[2017 (11) TMI 658 - CESTAT MUMBAI] which reached the same conclusion that repossession/recovery activities constitute input services. [Paras 5, 7, 8, 9] Recovery agent services were held to be eligible as input services and CENVAT credit availed thereon is admissible. Final Conclusion: The impugned orders denying CENVAT credit on recovery agent services were set aside; the appellant is entitled to the credit and consequential relief as per law. Issues: Whether services of recovery agents (including repossession activities) qualify as 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004 after the amendment effective 01.04.2011, and whether CENVAT credit availed on such services is admissible.Analysis: Rule 2(l) of the Cenvat Credit Rules, 2004 defines 'input service' as any service used by a provider of taxable/output service for providing an output service; the amendment effective 01.04.2011 altered the illustrative 'includes' list but did not change the principal definition. The decisive test is whether the service is used for providing the output service - in practical and functional terms - i.e., whether the output service could be provided without the contested service. For a non-banking financial company, timely loan recovery (including repossession and recovery agent activities) is integral to providing the lending service: delays or inability to recover affect borrower liability, collateral value, income and the lender's viability. External collection and repossession services directly facilitate the lending/output service and therefore satisfy the statutory 'used for providing an output service' criterion. Tribunal precedents (including Bajaj Finance Ltd. (Tri. Mum) and other cited decisions) applying the same test have held recovery/repo services to be input services; those authorities support applying the principal definition to allow credit where a direct and integral nexus with the output lending service exists.Conclusion: The services of recovery agents, including repossession activities, qualify as 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004 as amended w.e.f. 01.04.2011; the appellant is entitled to CENVAT credit on such services. The appeals are allowed in favour of the assessee and consequential relief shall follow as per law.