Securitization income whether trading in service tax

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ABHISHEK GUPTA (Querist)
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09 February 2012 As we know that now trading income is exempt under service tax and so, cenvat credit needs to be reversed under rule 6(3) of cenvat credit rules. I want to know whether income from securitization of loan portfolio of NBFC can be considered as income arising from trading activities. Whether loan receivables can be considered as goods under sales of goods act? Whether securitization of loan can be considered as sale under sale of goods act?

PUNEET GOYAL

PUNEET GOYAL (Expert)
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09 February 2012 As per section 65 (50) goods means goods defined in section 2 (7) Sale of Goods Act, 1930
As per section 2 (7) Sale of Goods Act, 1930
Goods - “Goods” means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. [section 2(7)].
It appears from the above definition that loan receivable cannot be said goods. As far as taxability of securitization services is concerned it looks like to fall under recovery agent services provided under section 65 (105) (zzl).
Thus it can be said that securitization of loan is not a trading activity. For any clarification you may write a letter to your range superintendence to clarify the same.

ABHISHEK GUPTA

ABHISHEK GUPTA (Querist)
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16 February 2012 Securitisation is an assignment of outstanding principal amount lent plus unmatured finance charges which is interest. On securitisation we become entitled to receive the Net Present Value (NPV) of the principal outstanding plus unmatured finance charges. The income arising out of securitisation is basically interest income in our line of business. This is recognized over the period of the lending contracts, the receivables under which were the subject matter of securitisation.
Securitization is a device of structured financing where an entity seeks to pool together its interest in identifiable cash flows over time, assign the same to investors either with or without the support of further collaterals, and thereby achieve the purpose of financing.
Now, some people say that above income recognized in P&L Account is income from trading activities and hence exempt. Whether this contention is correct?

PUNEET GOYAL

PUNEET GOYAL (Expert)
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16 February 2012 Trading involve sale and purchase of goods. In above transaction you are not doing doing any sale and purchase. Its a simple financing transaction in return of which investor earning interest. So in this transaction no trading activity involve.

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