TaxTMI 
TaxTMI 
2025 (12) TMI 1311
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.... a trust or assigned to a buyer as per the guidelines of Reserve Bank of India relating to 'Priority Sector Lending'. The Respondent undertakes to collect the debts from various borrowers and remit the same besides rendering certain other services to the trust or assigned Banks. The Respondent is paid an agreed specified percentage of the Principal and/or interest on such transfer or assignment of receivables. The buyers were mostly banks which buy the future receivable in order to fulfil the legal obligation cast upon them by the Reserve Bank of India to lend to priority sector including lending in rural areas. 2.2 As it appeared that the activity performed by the Respondent in helping the Banks to fulfil their legal obligation of 'Rural Lending' and 'Lending to Priority Sector' as stipulated by the Reserve Bank of India, would be covered by the category of services provided in relation to business or commerce and would fall under the broad category of 'Business Support Services' prior to 01.07.2012 and would also constitute a service as per the definition of 'service' laid down under Section 65B(44) of the Finance Act, 1994, from 01.07.2012 onwa....
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....n of receivables. The said amount has been paid by the Bank as a consideration for the securitized loan assigned to them. The said fact is evident from the accounting entry of the Respondent that it is made as a profit while providing the supporting service to the Bank. Therefore, the demand of tax on upfront fees by the Department is legal and proper. 6.3 The Ld. Authorized Representative has submitted that the Assessee enters into service agreement alongside the agreement for sale of future receivables. The sale of future receivables is determined only on the basis of the efficient performance given by the Respondent in collecting the receivables. Hence the upfront fee is linked to the performance of collection of the receivables. 6.4 Further, it is submitted that for the demand post 2012, with the introduction of definition of 'Service' under Section 65B(44), receipt of consideration while providing the service is the only requirement provided is that the service should not fall under the purview of Section 66 E, ibid. Therefore, the demand is legal. 6.5 The Excess Spread Income on Sell Down arises in view of the difference between the interest amount collected ....
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....ered under the pool from the Respondent /NBFC is booked as "excess spread income" every month which is nothing but profit on sale and it doesn't form part of "Service" and hence not considered for Service Tax by the Respondent/NBFC. 7.3 She further submits that the appellant failed to follow the timelines of completing adjudication process as laid down in Section 73(4B) of Finance Act 1994.The Central Excise Officer shall determine the amount of service tax due under sub-section (2)---- (a) within six months from the date of notice where it is possible to do so, in respect of cases falling under sub-section (1) (b) within one year from the date of notice, where it is possible to do so, in respect of cases falling under the proviso to sub-section (1) or the proviso to subsection (4A) 7.4 That the dropping of demands covered under Order-in-Original Nos. 13 & 14/2022-CH-N GST dated 31.01.2022 is legal and absolutely in order. 7.5 The Appellant department was already aware of transactions of this nature i.e., the business activity of securitization and sell down of receivables of the Respondent as early as the year 2010 when the issue reached Tribunal whi....
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....ash flow from the underlying pool of assets is used to service the securities issued by the SPV. Securitisation thus follows a two-stage process. In the first stage there is sale of single asset or pooling and sale of pool of assets to a 'bankruptcy remote' special purpose vehicle (SPV) in return for an immediate cash payment and in the second stage repackaging and selling the security interests representing claims on incoming cash flows from the asset Para 6 & 7 of the above Circular speaks about "True Sale" Here the term sale includes direct sale, assignment, and any other form of transfer of the assets which results in immediate legal separation of Seller from the assets which are sold." ii. RBI Circular RBI/DOR/2021-22/85DOR.STR.REC. 53/21.04.177/2021-22 dated September 24, 2021. & RBI/2012-13/170 DNBS. PD. No. 301/3.10.01/201213 dated August 21, 201 RBI vide its revised guidelines RBI/2012-13/170 DNBS. PD. No. 301/3.10.01/2012-13 dated August 21, 2012: - In the opening para-2 of the circular itself it has clarified that the securitization market is primarily intended to redistribute the credit risk away from the Originator to a wide spectrum ....
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....commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational or administrative assistance in any manner, formulation of customer service and pricing policies, infrastructural support services and other transaction processing. Explanation - For the purposes of this clause, the expression 'infrastructural support services' includes providing office along with office Utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security." iii. With effect from 01.07.2012, the term 'service' has been defined under Sec. 65B (44) of the Finance Act, 1994, as follows: - 'Service' means any activity carried out by a person for another for a consideration and includes a declared service, but shall not include - (a) an activity which constitutes merely - i) a transfer of title in goods or immovable p....
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....The differences are mainly accounting and the status of service recipient. Instead of Trust, ICICI bank is involved in the transaction. Further, the justification of tax liability under BAS in the appeal by the Revenue is with reference to obligation of the Trust to PTC holders and in the present case, the allegation is that the appellant-assessee in providing service to ICICI bank which is incidental or auxiliary to the bill collection. We are not in agreement with the proposition to identify the appellant-assessee as collecting agent of ICICI for BAS. Such collection agents are generally dealing an amount or instrument which is due to an institution from a third party for which the agent acts as a middleman. The present facts of the case makes it clear that instrument or amount is intended and remitted to the appellant-assessee by way of cheque. The said amount has to be transmitted to ICICI bank as per the agreed schedule towards servicing of already obtained consideration by the appellant-assessee. Hence there is no tripartite arrangement. The role of the appellant-assessee is mainly with reference to discharging the obligation of servicing the amount already received. All thes....
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....t with the ICICI bank. The conditions of transaction and schedule of payment will not influence the nature of activity as agreed upon between the two contracting parties. We find no element of Business Auxiliary Service in such arrangement. 11. In view of above discussions and analysis, the appeal by Revenue is dismissed and the appeal by appellant-assessee is allowed with consequential relief, if any, as per law.s" It has been held in the Order that there is no element of Service and allowed the Appeal in favour of Appellant/Assessee. 10.7 We find from the impugned Order that the securitization/assignment of future receivables resulted in four types of income for the Respondent as follows: - a. Upfront fees: This is nothing but the interest portion that is available over and above the net present value of the proposed receivable in the case of Direct Assignment being the profit element as between the NBFC selling the securities and the financial institutions buying the same. b. Express Spread Income on Sell-down: The analysis of the income would reveal that the amount collected under this head is the difference between the actual interest collected....
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....d by them from the customers on the assigned properties along with the principal amount being higher. The difference between the amount of interest collected by the Respondent from the customers and paid to the assignee is a profit to the Respondent in the form of 'Excess Spread Income Sell-down on securitization/sell down. According to the respondent, the other consideration received by the Respondent from the assignee after securitization is the 'Sell-down Servicing Fee' on a monthly basis. The Respondent collects all the future receivables from the customers, maintains the Books of Account in respect of the assigned properties, implements the KYC norms to their customers, makes payment of receivables to the assignee, etc. In order to render the aforesaid services, the Respondent collects service charges from the assignee. It is the contention of the Appellant that the activity of securitization/sell-down of future receivables to the Banks performed by the Respondent helped the Banks in fulfilling their legal obligation of rural lending and lending to priority sector. The Appellants considered such activities under the category of services provided in relation to business or c....
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....e, it can be seen that it is the profit/interest portion arising out of sale of receivables backed by assets, and the same doesn't fall within the purview of "Service, and therefore the payment of service tax on it will not arise as there is no element of service provided. 10.10.4 From the discussion above, we hold that there is no element of service in respect of the incomes received in the form of upfront fee and Excess Spread Income on Sell-down, which are essentially income generated through sale of future receivables, and service tax cannot be demanded on the same. Therefore, the Appeal against the dropping of demands cannot be held to be maintainable. As for the other two amounts viz. Collection Efficiency Fee and Sell-down Servicing Fee, since the Respondent has not disputed their tax liability and there is an issue of interest on the delayed payment of Tax which we do uphold. Thus, the Appeal of the Department fails on merits. 10.11.1 Further, we find that RBI has in its guidelines (RBI No. 2005-06/294 DBOD.NO.BP. BC.60/21.04.048/200506 February 1, 2006) has clarified what is securitization means (to refer paras-6 & 7 of the said guidelines under the heading "True....
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....ce Act, 1994. That service tax is, therefore, a tax on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity undertaken by a chartered accountant or a broker is an activity undertaken by him based on his performance and skill. This is from the point of view of the professional. However, from the point of view of his client, the chartered accountant/broker is his service provider. The value addition comes in, on account of the activity undertaken by the professional like tax planning, advising, consultation etc. It gives value addition to the goods manufactured or produced or sold or services provided. Thus, service tax is imposed every time service is rendered to the customer/client. This is clear from the provisions of Section 65(105)(zm) of the Finance Act, 1994 (as amended). Thus, the taxable event is each exercise/activity undertaken by the service provider and each time service tax gets attracted. Service tax is, thus, a tax on activity whereas sales tax is a tax on sale of a thing or goods. 10.11.4 We are absolutely clear that there cannot be any service Tax on the profi....
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....ent challenged the show cause notices before the Writ Court (Madras High Court) on the ground that the profit element, which is termed as Excess spread of income on sell-down amount is merely the difference between the actual interest collected on a hire purchase transaction and that paid to the financial institutions, who had purchased the debtors from the company. It is the grievance of the Respondent that the show cause notice considered the aspect of sale of securitization/sell-down of future receivables as being liable to tax and thus calculated the service tax liability. The Learned Single Judge dismissed the writ petition on the ground that the issues involved in the matter are pure questions of fact, which should be decided by the Adjudicating authority on merits. Feeling aggrieved, the Respondent had filed an intra court appeal. The WA filed by the Respondent was decided on 28-6-2018 upholding the order of the single Judge on merits. 10.17 As regards limitation, we find that the Department was seized of this issue in the year 2010 itself during the Audit of accounts of the Respondent, and the demand was set aside by this Tribunal in Appeal as discussed above in Pa....
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.... matter of abundant precaution, it is desirable that after the first SCN invoking extended period, subsequent SCNs should be issued within the normal period of limitation." In Paper Products Ltd. Versus Commissioner of Central Excise' [1999 (8) TMI 70 - SUPREME COURT] it was held by the Supreme Court that the departmental circulars are binding in nature on the revenue authorities and as the circular was in force at the relevant point of time, the demand against the appellants is not sustainable. 10.19.2 We are of the opinion that had the contents of the above Circular followed in letter and spirit, both the SCN's would not have come to be issued, as the Department was already seized of an identical issue of the same Assessee way back in 2010 itself and it is a genuine interpretational issue. 10.20 Now, coming to the first notice, viz. LTUAC/CHN/02/2016-(C) dated 09.06.2016, the Appellant in the impugned order has recorded that it had covered four issues viz. Upfront fees, Excess Spread Income Collection Efficiency fees and Sell-down Servicing Fee. Out of these four issues, the previous Order of the Commissioner which was decided by the CESTAT obviously covered only the two....
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....been made to the decision in M/s. Vandana Global Ltd. Versus Commissioner (Appeals) Central GST, Central Excise & Customs, Raipur [2022 (12) TMI 450 - CESTAT NEW DELHI], where it has been held that it is not correct to say that had the audit not been conducted, the alleged errors in assessment would not have come to light because they would have come to light if the officers had scrutinised the returns in time and called for any data or records which they needed. The fact that audit has pointed out the alleged mistakes only shows that the officers have not scrutinised the Returns properly. Thus, the extended period of limitation cannot be invoked in the present case, and therefore the demand being barred by limitation is unsustainable. 10.22 As for the second notice viz. 07/2020 (C) dated 15.10.2020, it is seen that this notice has been issued once again invoking the extended period of limitation which apparently is without any legal sanctity as this notice was issued on the same set of facts as that of the first notice dated 09.06.2016. There is nothing on record to show that the Respondent-assessee was non-co-operative and that the Department was unable to obtain the details f....
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....Distributors was not a related person. It is, therefore, futile to contend that there has been suppression of fact in regard M/s. Pharmachem Distributors being a related person. On that score, we are unable to uphold the invoking of the proviso to Section 11A of the Act for making the demand for the extended period." 10.23.2 This judgment was followed by this Court in the case of ECE Industries Limited v. Commissioner of Central Excise, New Delhi [(2004) 13 S CC 719] = [2004 (164) ELT 236 (SC)]. In para 4, it was observed: - "4. In the case of M/s. P&B Pharmaceuticals (P) Ltd. v. Collector of Central Excise reported in [2003 (2) SCALE 390], the question was whether the extended period of limitation could be invoked where the Department has earlier issued show cause notices in respect of the same subject-matter. It has been held that in such circumstances, it could not be said that there was any wilful suppression or mis-statement and that therefore, the extended period under Section 11A could not be invoked." 10.23.3 Similarly, this judgment was again followed in the case of Hyderabad Polymers (P) Ltd. v. Commissioner of Central Excise, Hyderabad [2004 (166) ELT 151(....