Service Tax Applicable on Recovery Agent Services; No Joint Venture Without Evidence: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi Principal Bench has upheld the demand of service tax holding that commission earned for recovery services constitutes taxable service and cannot be treated as revenue from a joint venture in the absence of supporting evidence. The bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that Barclays was the lender, and the appellant merely recovered dues on its behalf. The appellant received commission linked to recovery performance, which is typical of a service provider. A joint venture requires a principal-to-principal relationship with shared risks, contributions, and returns—none of which were established in this case. The appeal arose from an Order passed by the Commissioner (Appeals), Jaipur, which had upheld the earlier order confirming service tax demand against the assessee. The appellant, M/s Best Capital Services Limited, was registered for providing banking and legal consultancy services during the period from July 2012 to September 2015. During a departmental audit, it was discovered that the appellant had also acted as a recovery agent for M/s Barclays Investment & Loan India Ltd. However, the appellant neither declared these services nor discharged service tax liability on the consideration received. Additionally, non-payment of service tax under reverse charge on certain legal services was also detected. A show cause notice dated February 12, 2017, was issued proposing recovery of ₹86.85 lakh along with interest under Section 75 and penalty under Section 78 of the Finance Act, 1994. The adjudicating authority confirmed the service tax demand of ₹86,85,051 along with applicable interest and imposed penalty under Section 78. The penalty structure included 50% of tax for part of the period and 100% for the remaining period, subject to reduction if paid within the stipulated time. This order was upheld by the Commissioner (Appeals), prompting the appellant to approach the Tribunal. The appellant contended that its arrangement with Barclays was in the nature of a joint venture, and therefore, the income received represented its share of revenue rather than consideration for services. The appellant argued that there was no suppression of facts to justify invocation of the extended limitation period. It acted under a bona fide belief that service tax was not payable. Absence of TDS deduction by Barclays supported the joint venture claim. Penalty under Section 78 was not sustainable. The Tribunal categorically rejected the joint venture argument, observing that no documentary evidence was produced to substantiate the existence of any such arrangement. The Tribunal drew an analogy with real estate agents earning commission, emphasizing that percentage-based earnings do not convert a service relationship into a joint venture. On the issue of non-deduction of TDS, the Tribunal held that income tax treatment has no bearing on service tax liability. Whether TDS was deducted or not does not alter the nature of the transaction under indirect tax law. The Tribunal found that the appellant had failed to declare taxable receipts despite being registered under service tax, justifying invocation of the extended period of limitation. Consequently, the demand along with interest and penalty was upheld. Dismissing the appeal, the Tribunal upheld the orders of the lower authorities and confirmed the service tax demand, interest, and penalties. Case Details Case Title: M/S Best Capital Services Limited Versus Commissioner, Central Excise & Central Goods & Service Tax, Jaipur Citation: JURISHOUR-904-CES-2026(DEL) Case No.: Service Tax Appeal No. 50900 of 2019 Date: 22/04/2026 Counsel For Appellant: Priyanka Goel, Advocate Counsel For Respondent: Mehboor Ur Rehman Click Here To Read Order Read More: Companies (Registration Offices and Fees) Amendment Rules, 2026 Notified: MCA Revises DIR-3 KYC Filing Fee Structure

Service Tax Applicable on Recovery Agent Services; No Joint Venture Without Evidence: CESTAT

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