2023 (8) TMI 1144 - AT - Service Tax

Levy of Service tax - corporate guarantee against loan obtained from various financial institutions in exchange of credit protection fee - Banking and Other Financial Services or not - invocation of extended period of limitation - HELD THAT - In the common parlance corporate guarantee is a guarantee of one corporate unit to keep itself responsible for the financial obligations or any other contractual obligations of the principal debtor to the creditor on behalf of principal debtor while bank guarantee is a guarantee given by the bank on behalf of the applicant to cover its payment obligations to third party. What can be observed is that both bank and corporate guarantees are meant to provide assurances to the beneficiaries with same thin line distinction that while bank guarantee relies on the credit worthiness of a financial institutions, corporate guarantee depends on the credit worthiness of the parent-company/guarantor. Further, while bank guarantee involves a third party institution as guarantor, corporate guarantee involves a company within the same corporate group or structure as a guarantor - while referring the provisions contained in Section 65(12) of the Finance Act, 1994, may be because of typographical error or due to oversight of the provision clearly enumerating words as providing bank guarantee under sub-clause (ix) of the said provision, it has been noted that specific enumeration about corporate guarantee was not available for which legislative intent is unarguable. When both corporate guarantee and bank guarantee are held to be akin (similar to something) to each other, the only inference that can be drown is that incorporation of one of it would mean presence of the other. Having said so there are no second opinion on the issue that purpose of corporate guarantee and bank guarantee are one and same and while one is the species the other one is its genesis The appellant having received consideration against providing guarantee to its related company M/s Lavasa Corporation Ltd in the form of corporate guarantee and credit protection guarantee service is liable to pay service tax and, therefore, demand raised against the appellant is justified except for the extended period since the issue remained unsettled due to divergent opinion expressed by different judicial forums - appeal allowed in part.

Summary

Issues involved:
Confirmation of duty demand under section 73(2) of the Finance Act, 1994 along with penalties against the appellant for providing 'corporate guarantee' to another company against loan obtained from financial institutions without paying service tax.

Summary:

Issue 1: Taxability of 'corporate guarantee' and 'credit protection fee' as Banking and Other Financial Services

The appellant, a registered company, provided 'corporate guarantee' and 'credit protection services' to a related party without paying service tax. The Department computed taxable services for the period and issued a demand for the unpaid tax, interest, and penalties. The Commissioner confirmed the duty demand, interest, and penalties against the appellant. The appellant challenged the order, arguing that 'corporate guarantee' and 'credit protection fee' do not fall under Banking and Other Financial Services as defined in the Finance Act, 1994. The appellant relied on judicial precedents to support the argument that 'corporate guarantee' is distinct from 'bank guarantee' and is excluded from service tax liability.

Issue 2: Distinction between 'corporate guarantee' and 'bank guarantee'

The Tribunal analyzed the distinction between 'corporate guarantee' and 'bank guarantee,' noting that both serve to provide assurances to beneficiaries but have operational differences. While 'bank guarantee' relies on the creditworthiness of a financial institution, 'corporate guarantee' depends on the creditworthiness of the guarantor company. The Tribunal found that the purpose of both guarantees is similar, and the absence of specific mention of 'corporate guarantee' in the Finance Act, 1994 does not exclude it from service tax liability. The Tribunal held that the appellant, being a registered company, is liable to pay service tax for providing 'corporate guarantee' and 'credit protection services.'

Conclusion:

The appeal was allowed in part, modifying the Commissioner's order to set aside the liabilities imposed on the appellant for the extended period. The Tribunal upheld the service tax liability of the appellant for providing 'corporate guarantee' and 'credit protection services' to a related party, emphasizing the similarity in purpose between 'corporate guarantee' and 'bank guarantee' despite operational differences.