2019 (9) TMI 1123 - AT - Service Tax

Whether the Offshore Upfront Fee paid by the respondent is an interest or a fee? - HELD THAT - We find that if it is an interest then service tax is not payable by the appellant in terms of the Circular No. F.No. B2/8/2004-TRU dt. 10.09.2004 wherein interest on loan is not the part of taxable value - We have gone through the facts of the case and the respondent has produced a letter from the Standard Chartered Bank dated 15.12.2014 to show that the Offshore Upfront Fee is nothing but an interest on buyer credit transaction as stipulated by the RBI Guidelines. On going through the said letter, we hold that the said amount on which the service tax is being demanded and Upfront Fee is nothing but an interest and on interest, no service tax is payable by the respondent, therefore, the respondent is not liable to pay service tax on the said amount. Decided in favor of assessee.

Summary

Issues:
1. Taxability of corporate guarantee provided by the appellant-assessee to banks/financial institutions.
2. Tax liability on "Offshore Upfront Fee" paid to foreign bankers by the respondent.

Issue 1: Taxability of Corporate Guarantee:
The appellant-assessee provided corporate guarantees to banks/financial institutions on behalf of their associates. The Revenue alleged tax liability under Banking and Finance Institution Services, contending that the activity is taxable. However, the appellant-assessee argued that they did not receive any consideration for providing the corporate guarantee. The Tribunal noted that no consideration was received by the appellant-assessee from the financial institutions or their associates for the guarantees. The demand for service tax was based on assumptions regarding lower interest rates for associates, but no evidence supported this claim. Consequently, the Tribunal held that the appellant-assessee was not liable to pay service tax on the corporate guarantees provided, both before and after July 1, 2012. The impugned orders demanding service tax were set aside, and no penalty was imposed on the appellant.

Issue 2: Tax Liability on "Offshore Upfront Fee":
The respondent was engaged in providing services like maintaining office and commercial complexes. The Revenue issued show cause notices to levy service tax on the "Offshore Upfront Fee" paid to foreign bankers for "Foreign Currency Buyer Credit Facility." The Revenue argued that the fee was interest, thus subject to service tax. The respondent contended that the fee was part of the cost of capital provided by the offshore lenders. The Tribunal examined whether the fee constituted interest or a fee. The respondent presented a letter from a bank stating that the fee was interest on buyer credit transactions as per RBI guidelines. The Tribunal concluded that the fee was indeed interest and, as per a circular, interest on loans is not taxable. Consequently, the Tribunal held that the respondent was not liable to pay service tax on the fee. The appeal by the Revenue was dismissed, upholding the impugned order dropping the demand against the respondent.

In conclusion, the Tribunal ruled in favor of the appellant-assessee regarding the taxability of corporate guarantees and the respondent concerning the tax liability on the "Offshore Upfront Fee." The judgments emphasized the absence of consideration for the guarantees and the nature of the fee as interest, respectively, leading to the dismissal of the demands for service tax in both cases.