Whether Verification of information furnished by loan seekers on behalf of customer is taxable or not?

PJ/CASE LAW/2015-16/2751

Case:-CREDENTIALS Versus COMMISSIONER OF CENTRAL EXCISE, PUNE-III

Citation:-2015 (37) S.T.R. 235 (Tri. - Mumbai)

Brief facts:-The appellants are in appeals against the impugned orders wherein Service Tax liability has been confirmed against the appellants under the category of Business Auxiliary Service for the period July, 2002 to March, 2006.
As the issue involved in all the appeals are common therefore, all the appeals are disposed of by a common order.
Brief facts of the case are that the appellants are providing service namely verification of information given by the customers applying for the Credit Cards, Home Loans or Auto Loans etc. The said activities have been outsourced to them by various banks. The appellants are registered under the category of Business Auxiliary Services and paying Service Tax on the said activities except for the services provided to ICICI Bank and IDBI Bank. Revenue was of the view that as the appellants are not paying Service Tax on the services mentioned here-in-above provided to ICICI Bank and IDBI Bank therefore, they are required to pay Service Tax during the impugned period for the services provided to ICICI Bank and IDBI Bank. Show cause notices were issued to the appellants. Demands were adjudicated and confirmed along with interest and penalties. Aggrieved by the said order, the appellants are before tribunal.

Appellant’s contention:-The learned Advocate appearing on behalf of the appellants submits that the activity undertaken by the appellants falls under the category of “Business Support Service” which came into effect on 1-5-2006. Therefore, the appellants are not required to pay Service Tax under the category of “Business Auxiliary Service” prior to May, 2006. In the circumstance, he prays that the impugned order be set aside.

Respondent’s contention:- On the other hand, the learned AR submits that from 1-7-2003 the activity of “Business Auxiliary Service” came into Service Tax net and as per Clause (iv) of Section 65(19) of the Finance Act, 1994, the activities and services of the appellants coming within the ambit of the Service Tax category of “Business Auxiliary Service”. Therefore, the appellants are required to pay Service Tax during the impugned period. It is further submitted that intention to evade payment is very much clear from the dealing of the appellants as they are paying Service Tax on the same services provided to other Banks except ICICI and IDBI. Therefore, extended period of limitation is also invocable in the facts of this case.

Reasoning of judgment:-They have gone through the Section 65(19) of the Finance Act, 1994 which defines the term “Business Auxiliary Service” during the relevant period which is reproduced hereinunder :-
“Business Auxiliary Service”
(i)         promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii)        promotion or marketing of service provided by the client; or
(iii)       any customer care service provided on behalf of the client; or
(iv)       any incidental or auxiliary support service such as billing, collection or recovery of cheques, account and remittance, evaluation of prospective customer and public relation services,
and includes services as a commission agent, but does not include any information technology service.
Prior to 10-9-2004, the activity undertaken by the appellant clearly falls under Clause (iv) of Section 65(19) of the Finance Act, 1994. Therefore, prior to 10-9-2004, they hold that the appellant is required to pay Service Tax and the demand for Service Tax for that period is confirmed.
They also observe that with effect from 10-9-2004 the definition of “Business Auxiliary Service” was amended and as per the said definition the “Business Auxiliary Service” is exhausted and the activities undertaken by the appellants were not covered by the said definition. They have gone through the said definition also which is reproduced hereinunder :-
“business auxiliary service” means any service in relation to -
(i)         promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii)        promotion or marketing of service provided by the client; or
(iii)       any customer care service provided on behalf of the client; or
(iv)       procurement of goods or services, which are inputs for the client; or
(v)        production or processing of goods for, or on behalf of the client; or
(vi)       provision of service on behalf of the client; or
(vii)      a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision and includes services as a commission agent (but does not include any activity that amounts to “manufacture” of excisable goods.)
As per the said definition, the activity undertaken by the appellant is not covered under clauses (i) to (vi) of Section 65(19) of the Finance Act, 1994, then they are not required to pay Service Tax on their activity. As in this case, the appellants activities does not get covered under clauses (i) to (vi) of Section 65(19). Therefore, they hold that with effect from 10-9-2004 onwards the appellants are not required to pay Service Tax. They find support to the case from the decision of this Tribunal in the case of S.R. Kalyanakrishnanv. CCE - 2008 (9)S.T.R.255 (Tri.-Bang.) wherein this Tribunal has observed that verification of information furnished by loan seekers cannot be treated as promoting their business. Therefore, such activity does not fall under “Business Auxiliary Service” but with effect from 1-5-2006, it falls under the category of “Business Support Service”. Following the precedent decision in the case of S.R. Kalyanakrishnan (supra), they hold that for the period 10-9-2004 onwards the appellants are not liable for Service Tax under the category of “Business Auxiliary Service” on their activities.
Therefore, it is concluded that the appellants are liable to pay Service Tax for the period 1-7-2003 to 9-9-2004 on the services provided to ICICI and IDBI Banks under the category of “BAS”. With these terms the appellants are directed to pay Service Tax for the said period along with interest.
They further find that as the appellants are paying Service Tax on the same activities provided to other banks therefore, they impose penalties equivalent to their Service Tax liabilities on the appellants under Section 78 of the Finance Act, 1994. They further find that as the appellants have not charged Service Tax separately from ICICI and IDBI Banks therefore, the remuneration received towards providing Service Tax shall be treated as cum-service charges.
Appeals are disposed of in the above terms.

Decision:-Appeals disposed off.

Comment:-The crux of the case is that the activity of verification of information furnished by loan seekers on behalf of ICICI and IDBI Bank, clearly falls under the definition of Business Auxiliary Service. w.e.f. 10.9.2014 this activity is not considered as Business auxiliary service. Appellants are liable to pay Service Tax for the period 1-7-2003 to 9-9-2004 on the services provided to ICICI and IDBI Banks under the category of BAS. Appellants have not charged Service Tax separately from ICICI and IDBI Banks therefore, the remuneration received towards providing Service Tax shall be treated as cum-service tax.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2751

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