2022 (2) TMI 1359 - AT - Service Tax

Recovery of Service tax - provision of guarantee to overseas companies for which consideration had been received towards guarantees provided free of charge to their Indian subsidiaries, for rendering taxable service under section 65(105)(zm) of Finance Act, 1994 - HELD THAT - The legislative intent to exclude corporate guarantees is unarguable. The monitorial engagement of Reserve Bank of India arises from its own statutory empowerment and to graft that supervision on a tax statute for determining tax liability is not tenable. The adjudicating authority has, rightly, declined to be guided by the decision of the Tribunal in KAVERI AGRI CARE PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX, MYSORE 2010 (11) TMI 153 - CESTAT, BANGALORE as it is settled law that interim orders do not offer themselves as binding precedent and the lack of elaboration of the observation therein detracts from its employability to advance the case of Revenue. The decision of the Tribunal in CCE ST (LTU) , CHENNAI VERSUS M/S. NEYVELI LIGNITE CORPORATION LTD. 2017 (9) TMI 784 - CESTAT CHENNAI deals with an entirely different set of facts and the explanation therein of guarantee , as commonly understood, for placing that dispute in a context is of no assistance here. The criticality of consideration for determination of service, as defined in section 65B(44) of Finance Act, 1994, for the disputed period after introduction of negative list regime of taxation has been rightly construed by the adjudicating authority. Any activity must, for the purpose of taxability under Finance Act, 1994, not only, in relation to another, reveal a provider , but also the flow of consideration for rendering of the service. In the absence of any of these two elements, taxability under section 66B of Finance Act, 1994 will not arise. It is clear that there is no consideration insofar as corporate guarantee issued by respondent on behalf of their subsidiary companies is concerned. The inevitability of consideration as manifesting taxable service - there are no merit in the appeal of Revenue which is dismissed.

Summary

Issues:
Revenue's appeal against the dropping of proceedings for corporate guarantee tax liability.

Analysis:
1. The Revenue challenged the dropping of proceedings against M/s Edelweiss Financial Services Ltd for providing corporate guarantees to subsidiaries without discharging tax liability. The show cause notice sought recovery of &8377;97,95,62,947, including amounts towards guarantees provided to overseas companies and Indian subsidiaries for taxable services. The adjudicating authority concluded that the commission from overseas companies was not taxable, and corporate guarantees did not fall under the definition of 'other financial services' until June 2012.

2. The Revenue argued that corporate guarantees are akin to bank guarantees and should be taxed accordingly. They cited RBI circulars to support that corporate guarantees are financial services under the Finance Act, 1994. The Revenue also referenced Tribunal decisions to strengthen their position on the taxability of such services.

3. Regarding the period after July 2012, the Revenue contended that even if no monetary benefit was received, the improved credit rating of subsidiaries compensated M/s Edelweiss Financial Services Ltd. However, the definition of 'consideration' in the Finance Act was debated.

4. The respondent relied on a Tribunal decision in a similar case to argue that no service tax is payable if no consideration is received for providing corporate guarantees. They also referenced another Tribunal decision to counter the Revenue's arguments.

5. The exclusion of corporate guarantees from the levy was supported by the Tribunal's decision in a previous case. The legislative intent to exclude corporate guarantees from 'other financial services' was highlighted, emphasizing the lack of specific enumeration for corporate guarantees in the relevant section of the Finance Act.

6. The adjudicating authority rightly disregarded certain Tribunal decisions as interim orders do not set binding precedents. The importance of 'consideration' for determining tax liability under the Finance Act was emphasized, stating that taxability requires both a 'provider' and 'consideration' for the service.

7. The reliance on non-monetary benefits for determining assessable value under the Finance Act was distinguished from ascertaining 'service' under the Act. The necessity of 'consideration' for taxable services was reiterated, emphasizing that assessable value determination follows consideration for levy calculation.

8. Considering the settled law and the requirement of 'consideration' for taxable services, the appeal of the Revenue was dismissed, along with the cross-objection. The decision was pronounced in open court on 16th February 2022.