2014 (12) TMI 659 - AT - Service Tax

Waiver of pre-deposit of service tax, interest and penalties - Banking and Financial Institution Services - Held that - Applicant is not a banking company and service tax is payable only on the issuance of the bank guarantee issued by the bank. Further, we have seen the impugned order wherein in one case, the guarantee has been given by the bank; in that case service tax has been paid by the bank and credit of the said service tax has not been availed by the applicant. Further, we find that in the Guarantee the word Bank is mentioned wrongly instead of applicant itself. Admittedly, the guarantees issued by the applicant does not bear or does not have any party as a bank. In these circumstances, prima facie applicant has made out a case for complete waiver of pre-deposit. Accordingly, we waive the requirement of pre-deposit of entire amount of service tax, interest and penalties and stay recovery thereof during the pendency of the appeals. - Stay granted.

Summary

Issues:
Waiver of pre-deposit of service tax, interest, and penalties confirmed against the applicant for issuing guarantees to corporate entities.

Analysis:
The applicant, a Banking Financial Company, issued guarantees to corporate entities and charged a commission. The Revenue contended that the applicant was required to pay service tax under Banking and Financial Institution Services. Show cause notices were issued, and orders confirming the demand of service tax, interest, and penalties for the period 2004-2005 to 2009-2010 were challenged by the applicant seeking waiver of pre-deposit.

The applicant argued that it did not fall under the definition of banking and other financial services as per Section 65(12) of the Finance Act, 1994, as it was not a banking company and did not hold a banking license. The applicant claimed that only guarantees issued by banks were liable to service tax, and since the guarantees issued by the applicant did not involve any bank, they were not required to pay service tax on the commissions received for executing guarantees. Thus, the applicant sought a waiver of pre-deposit of service tax, interest, and penalties.

The Revenue opposed the applicant's contention, stating that the guarantees issued by the applicant were indirectly covered by bank guarantees since the loans advanced by banks were secured by the guarantees. It was argued that the guarantees issued by the applicant were recoverable from the bank, and hence, service tax was applicable to these transactions. The Revenue claimed that the demand of service tax against the applicant was rightly confirmed.

After hearing both sides and considering the submissions, the Tribunal noted that the applicant was not a banking company and that service tax was payable only on bank guarantees issued by banks. The Tribunal observed discrepancies in the guarantees issued by the applicant, where the word "Bank" was mentioned incorrectly instead of the applicant itself. As the guarantees did not involve any actual bank as a party, the Tribunal found that the applicant had a prima facie case for a complete waiver of pre-deposit. Consequently, the Tribunal waived the requirement of pre-deposit for the entire amount of service tax, interest, and penalties, staying the recovery during the pendency of the appeals.