2023 (10) TMI 1363 - AT - Service Tax

Levy of Service tax on the corporate guarantee given to the subsidiaries by the appellants - banking and other financial services - demand confirmed on the basis of the calculation of notional income made by the appellants as per the requirements under the Transfer Pricing under the Income Tax Act, 1961 - Income Tax department had charged guarantee commission as arm s length commission on the issuance of corporate guarantee to overseas companies - HELD THAT - The assessment order passed by the Income Tax Officer was appealed against before the learned Commissioner of Income-Tax (Appeals), Mumbai, which was allowed in favour of the appellants, with direction to the assessing officer to delete the addition, holding that no guarantee fee was actually charged on the loans concerned. Further, it is also found that the appellants did not charge any consideration for providing the corporate guarantees. Insofar as levy of service tax is concerned, the same should be on the amount of consideration received for provision of such service. In the present case, since there is no involvement of any commission amount in the form of consideration, the appellants cannot be saddled with the service tax liability as demanded in the impugned order There are no merits in the impugned order, insofar as it has confirmed the adjudged demands on the appellants - appeal allowed in favour of appellant.

Summary

Issues involved:
The issues involved in the judgment are the interpretation of the transaction as provision of bank guarantee, liability for payment of service tax, and the demand for service tax on corporate guarantees given to subsidiaries.

Summary:

Issue 1: Interpretation of transaction as provision of bank guarantee
The department interpreted the transaction as provision of bank guarantee, a taxable service under the Finance Act, 1994, and demanded service tax on corporate guarantees given to subsidiaries. The department issued a show cause notice seeking recovery of service tax. The matter was adjudicated by the Commissioner, confirming the demand and imposing penalties. The appellants appealed before the Tribunal.

Issue 2: Liability for payment of service tax
The department confirmed the service tax demand based on notional income calculated by the appellants as per Transfer Pricing requirements under the Income Tax Act, 1961. However, the Income Tax department had not charged any guarantee fee on the issuance of corporate guarantee to overseas companies. The Tribunal held that since no consideration was charged for providing the corporate guarantees, the appellants cannot be held liable for service tax. The Tribunal referred to a previous decision to support its conclusion.

Issue 3: Demand for service tax on corporate guarantees
The Tribunal noted that the order was affirmed by the Supreme Court, which found that the assessee had not received any consideration while providing corporate guarantees to group companies. As no consideration was involved, issuance of corporate guarantees without consideration was not considered a taxable service. The Tribunal set aside the impugned order and allowed the appeal in favor of the appellants.

In conclusion, the Tribunal ruled in favor of the appellants, setting aside the demand for service tax on corporate guarantees given to subsidiaries.