TAXABILITY OF RECOVERY AGENT'S SERVICES

 

TAXABILITY OF RECOVERY AGENT'S SERVICES

Service tax had been imposed on recovery agent's services by the Finance Act, 2006 with effect from 1st May, 2006 vide Notification No. 15/2006-ST dated 25.4.2006. The gross amount charged by recovery agent to a person in relation to recovery services is chargeable to service tax.

Meaning of Recovery Agent

Recovery agent has not been defined but it would cover recovery agents or enforcement agencies under Securities and Reconstruction of Financial Assets and Enforcement of Security Act, 2002. Under this Act, and rules made thereunder, banks and other financial institutions appoint recovery agents.

For the purpose of service tax, recovery shall be of any sums due to the service receiver and nothing else (asset or other property).

To recover means to find or regain possession of, regain control of, regain or secure by any of a legal process, to get again. Recovery means the action of regaining or securing money lost or spent by means of a legal process or subsequent profits, debts recovery. Recovery means a thing secured by a process of law, the actual possession of any thing, or its value, by judgment of a legal tribunal, the obtaining of a thing as a result of an action brought for the purpose.

Taxable Service

Section 65(105)(zzzl) defines taxable service as under —

Taxable service means services provided to a banking company or a financial institution including a non-banking financial company or any other body corporate or a firm, by any person, in relation to recovery of any sums due to such banking company or financial institution, including a non-banking financial company, or any other body corporate or a firm, in any manner.

The services provided for recovery of any sums due to a commercial or business entity are covered as taxable service.

The taxable services could be provided to any of the following –

(a) a banking company

(b) a financial institution

(c) a non-banking financial company (NBFC)

(d) any body corporate, or

(e) a firm

To be a taxable service, following ingredients should be satisfied —

(a) the activity should result in provision of service.

(b) service provider i.e., recovery agent can be any person.

(c) the service should be provided to specified persons only i.e., bank, financial institution, NBFC, body corporate or firms.

(d) service provided or to be provided should be in relation to recovery of any sums due to such persons.

(e) service may be provided in any manner by recovery agent.

The services provided to an individual or person or HUF are not taxable services. The services of recovery agent should be for recovery of any sums due to such service receiver and it appears that recovery of assets or property or goods is not covered but such assets if offered as security against any sums due shall be covered under taxable services. For example, recovery of a vehicle or machinery which has been financed by way of a loan or hire purchase would be a taxable service but recovery of a stolen vehicle or machinery does not fall under the definition. The taxable service can be provided in any manner.

CBEC has vide Circular No. 334/4/2006-TRU, dated 28-2-2006 clarified as under —

"Services provided for recovery of any sums due to a commercial or business entity are covered under this category. Under Securities and Reconstruction of Financial Assets and Enforcement of Security Act, 2002 and the relevant rules made there under, banks and other financial institutions appoint recovery agents."

Person Liable

Recovery agency providing recovery agent's services shall be person liable and treated as an assessee for service tax purposes.

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By: Dr. Sanjiv Agarwal
Dated: - December 20, 2011

143[2] :- Issue of notice is equivalent to its service

 

V.R.A. Cotton Mills (P) Ltd vs. UOI (P&H High Court)

March, 02nd 2012
S. 143(2): Issue of notice is equivalent to its service

In respect of AY 2009-10, the assessee filed a ROI on 29.09.2009. The last date for service of the s. 143(2) notice was 30.09.2010. A notice u/s 143 (2) was served by affixation at 11.20 pm on 30.09.2010. The assessee filed a Writ Petition claiming that u/s 282 (1), a notice or requisition had to be served either by post or as if it was a summons issued by a Court under the CPC and that service by affixture was invalid. The assessee relied on CIT vs. AVI-OIL India 323 ITR 242 (P&H) where it was held that a notice u/s 143(2) had not only to be issued, but had to be served before the expiry of 12 months (now 6M) from the end of the month in which the return was furnished. Hotel Blue Moon 321 ITR 362 (SC) was relied upon to contend that in the absence of a s. 143(2) notice, the assessment was invalid. HELD dismissing the Petition:

S. 143(2) (ii) provides that no notice shall be served on the assessee after the expiry of six months. The question is that what is the meaning of expression served? Is it used literally, so as to mean actual physical receipt of notice by the addressee or the expression served is inter changeable with the word issue. We are of the opinion that the expressions serve and issue are interchangeable. In view of the law laid down in several judgments, the date of receipt of notice by the addressee is not relevant to determine, as to whether the notice has been issued within the prescribed period of limitation. The expression serve means the date of issue of notice. The date of receipt of notice cannot be left to be undetermined dependent upon the will of the addressee. Therefore, to bring certainly and to avoid attempts of the addressee to evade the process of receipt of notice, the purpose of the statute will be better served, if the date of issue of notice is considered as compliance of the requirement of proviso to s. 143(2) of the Act. In fact that is the only conclusion that can be arrived at to the expression serve in s. 143(2). In AVI-OIL India 323 ITR 242 (P&H), a literal meaning of the term service was taken in ignorance of the binding precedents. It does not lay down any binding principle and is per incuriam.