2026-VIL-501-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - CENVAT credit on recovery agent services - The appellant availed CENVAT credit of service tax paid under reverse charge on services provided by 'recovery agents' and reversed 50% of the credit monthly – With the amendment to the definition of "input service" with effect from 01.04.2011, it was alleged that recovery agent services were not used for providing the appellant's output service of money lending and therefore did not qualify as input services under Rule 2(l) of the CCR, 2004 - Whether the services of recovery agents, which are part of the loan recovery mechanism, have a direct and integral nexus with the appellant's output service of money lending and are hence eligible to be availed as an 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004 - HELD - The main definition, "input service" means any service used by a provider of taxable service for providing an output service. The test is whether the output service could practically be provided without the services provided by recovery agents. Timely recovery of loans is as critical for a non-banking financial company as for a bank. Delays lead to increased borrower liability, loss of alternative income, depreciation of collateral, potential capital loss, and liquidity stress that may threaten the lender's viability. Loan recovery is thus an integral part of the lending service, whether undertaken internally or through external agencies, enforcement of security, or legal proceedings. Money lending and recovery are two sides of a same service. There cannot be one without the other. Without an effective recovery mechanism, the output service of lending cannot be practically provided. Accordingly, services rendered by external collection agencies, which is part of the loan recovery mechanism, have a direct and integral nexus with the appellant's output service and are hence eligible to be availed as an 'input service' - The appellant is eligible for CENVAT credit on the services of recovery agents – The impugned order is set aside and the appeal is allowed
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