Asset Reconstruction Company (India) Limited Vs Principal Commissioner (CESTAT Mumbai)
Asset reconstruction company trustee services not taxable under banking & financial services – Demand of over Rs. 50 crores set aside; mutuality principle applied: CESTAT Mumbai
The appellant is the largest Asset Reconstruction Company in India. It is registered as an NBFC. It floats a “trust” for liquidation of NPAs of banks. It issues security receipts (SR) in terms of Section 7 and 7A of the SARFAESI Act, 2002. It receives management fees for managing the trust as the trustee. It also earns a management incentive upside on liquidation of assets. The Service Tax Department sought to levy service tax on the above receipts under “banking or financial” service. A demand of over Rs. 50 crores along with interest and equivalent penalty was confirmed. Hence, appeal.
The Hon’ble CESTAT, Mumbai set aside the order and allowed the appeal. It held: (i) for the period prior to 01.07.2012; the appellant is not providing any banking service or recovery agent service as it is undertaking a statutory function; (ii) applying the principle of “ejusdem generis” and Circular issued by CBIC holds that it is not a banking or financial institution; (iii) for the period post negative list; holds that there is consideration; however; service is not provided from one “person” to another as trust and trustee are not different persons; (iv) follows the “mutuality principle” enunciated by the Supreme Court in the case of State of West Bengal vs. Calcutta Club Limited; (v) holds that there is no suppression of facts as the issue is one of interpretation and audit had clarified that there is no service provided to any other person; (vi) remands matter back for decision on management incentive upside in light of the Supreme Court ruling.
