2026-VIL-1600-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - CENVAT Credit - Input service for recovery agents - Recovery service as part of lending activity - The Appellant provided banking and financial services including money lending on hypothecation basis. The Appellant availed CENVAT credit on services of recovery agents engaged to recover loans from defaulting customers and repossess vehicles - Department disallowed fifty percent of CENVAT credit alleging that recovery agent service was not used for providing output service of lending as recovery becomes necessary only after default which is subsequent to completion of lending activity. The Appellant contended that recovery is integral part of lending activity - Whether service of recovery agents qualifies as input service under Rule 2(l) of CENVAT Credit Rules for a lending activity and whether recovery is severable from lending - HELD - The business of lending money by a bank or NBFC is not exhausted by disbursement of loan. Lending is a continuing exposure that remains open until amount lent is realised whether by voluntary repayment or by recovery and enforcement of security. Default and consequent recovery is not extraneous contingency but inherent and inseparable incident of extending credit - To treat recovery as wholly discrete activity disconnected from lending artificially fragments what is commercially and functionally single continuous activity - the service of the recovery/collection agents engaged by the appellant, for recovery of instalments in default and enforcement of the security furnished by way of hypothecation of the financed vehicle, is a service used by the appellant “for providing” its output service of lending, within the “means” clause of Rule 2(l) of the CCR- Service of recovery agents falls within includes clause as ‘service in relation to’ financing and security. Rule 6(3B) of CENVAT Credit Rules being non-obstante provision applicable to NBFC engaged in extending loans overrides restrictions in Rule 6(1), (2) and (3) - The issue involved bona fide question of interpretation on which extended period cannot be invoked in absence of positive act establishing suppression or intent to evade - CENVAT credit availed on service tax paid on commission to recovery agents is credit on eligible input service. The demand of ineligible credit availed is set aside. Extended period of limitation was not validly invokable. Penalties imposed are set aside – The appeal is allowed
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