2017 (9) TMI 784 - AT - Service Tax

Business Support Services - reverse charge mechanism - guarantee provided by the Government of India to Neyveli Lignite Corporation (NLC) - Held that - When the meaning of the term support services of business or commerce is read it throws light that the provider of service of the nature and description aforesaid should have been engaged in the provision of that service which would support the service recipient - Guarantee as is understood in the economic world is an undertaking given by a guarantor to secure a financial commitment which is the scope of banking and financial service. The Govt. is neither a banker nor a financial service provider - appeal dismissed - decided against Revenue.

Issues: Revenue's appeal against dropping the allegation that the guarantee provided by the Government of India to Neyveli Lignite Corporation (NLC) was a Business Support Service taxable under reverse charge mechanism.

The judgment pertains to an appeal by the Revenue challenging the order of the ld. Commissioner dropping the allegation that the guarantee provided by the Government of India to NLC constituted a Business Support Service subject to taxation under the reverse charge mechanism. The issue revolved around whether the guarantee fell under the category of "Business Support Service" as per Section 68(2) of the Finance Act, 1994. The Tribunal analyzed the nature of the guarantee provided by the Government of India to NLC for raising a loan from Germany and its classification under the relevant tax provisions.

The Tribunal noted that the allegation in the Show Cause Notice (SCN) did not establish that the guarantee provided by the Government of India to NLC for raising a loan from Germany constituted a business support service. It was emphasized that a guarantee is a financial obligation falling under the category of "Banking and other Financial Service" as per the taxing entry. The Tribunal referred to the definitions of "Banking and Financial Services" under Section 65 (105) (zm) and Section 65 (12) of the Finance Act, 1994, to clarify the nature of guarantees in the financial context.

In examining whether the Government's guarantee could be classified as a "business support service," the Tribunal referred to the definition provided under Section 65 B (49) of the Finance Act, 1994. The definition encompassed various support services related to business or commerce, such as infrastructural, operational, administrative, logistic, and marketing support. However, the Tribunal concluded that the Government's role as a guarantor did not align with the concept of providing support services of business or commerce, as understood within the statutory framework.

The Tribunal highlighted that for a service to qualify as "support services of business or commerce," the provider of such service must be engaged in activities supporting the recipient's business operations. In this context, the Tribunal determined that the Government's provision of a guarantee did not fall within the scope of support services of business or commerce. It was clarified that a guarantee primarily serves to secure financial commitments, a function typically associated with banking and financial services, which the Government does not provide. Consequently, the Tribunal dismissed the Revenue's appeal, upholding the decision that the Government's guarantee did not constitute a taxable business support service.

In conclusion, the Tribunal's judgment clarified the distinction between a guarantee provided by the Government and the concept of business support services for taxation purposes. By interpreting the relevant statutory provisions and definitions, the Tribunal determined that the Government's guarantee did not qualify as a business support service subject to taxation under the reverse charge mechanism. The decision to dismiss the Revenue's appeal was based on the finding that the nature of the guarantee fell within the realm of financial obligations rather than the provision of support services of business or commerce.

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