Corporate Guarantee is taxable as Business Auxiliary Service under Section 65(105)(zzb) of the Finance Act

[CA Bimal Jain]

M/s. Infrastructure Leasing and Financial Services Limited (“the Respondent”) is engaged in the business of providing ‘financial services’. The Respondent was issued Show Cause Notice dated July 23, 2009, and September 29, 2010 (“the SCN”) by the Revenue Department (“the Appellant”) on the ground that the Respondent has failed to discharge the tax liability for the period from 2004-05 to 2009-10 on the ‘commission’ charged for providing ‘corporate guarantee’ to their customers despite the said service being specifically included in ‘Banking and other Financial Services’ under Section 65(12)(ix) of the Finance Act, 1994 (“the Finance Act”) for the purpose of levy of tax under Section 65(105)(zm) of the Finance Act. The SCN was adjudicated by the Appellant, thereby confirming the recovery of the amount of Rs.2,01,03,661/- for the period of 2004-05 to 2008-09 and Rs.94,08,029/- for the period of 2009-10 under Section 73 of the Finance Act, along with interest and penalty under Section 75 and 76 of the Finance Act vide Order dated February 18, 2014 (“the Order”).

Aggrieved by the Order, the Respondent filed an Appeal before the CESTAT, Mumbai [INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD VERSUS COMMISSIONER OF SERVICE TAX – I - 2021 (9) TMI 450 - CESTAT MUMBAI] challenging the Order along with the proceedings initiated by the Appellant.  The Tribunal vide Final Order dated September 07, 2021 (“the Impugned Order”) set aside the Order and allowed the Appeal, thereby holding that, the Corporate Guarantee would be taxable as Business Auxiliary Service under Section 65(105)(zzb) of the Finance Act. The Tribunal noted that, different ‘taxable service’ was invoked for the purpose of initiating recovery proceedings and the Appellant failed to determine the facilitation of the Corporate Guarantee provided, within the purview of taxable service under Section 65(105)(zm) of the Finance Act. Also, there is a lack of certainty of ‘taxable service’ in the mind of the Authority issuing the SCN. Therefore, the Appellant cannot impose tax liability on the Respondent.

Aggrieved by the Impugned Order, the Appellant filed Civil Appeal before the Hon’ble Supreme Court of India [Civil Appeal No. 2406-2407 of 2022] which has been admitted vide Order dated November 3, 2023.

(Author can be reached at [email protected])