2020 (6) TMI 418 - AT - Service Tax

Demand of service tax - amount earned for executing corporate guarantee in favour of their sister - non imposition of penalty for the preferential location charges recovered from the flat owners - Revenue alleges that the such activity is taxable under Banking and Finance Institution Services whereas the appellant is contesting that they are not liable to pay service tax on the said activity as they have not received any consideration for providing corporate guarantee to various banks on behalf of their associates - HELD THAT - It is an admitted fact that the appellant has not received any consideration from either from the financial institutions or from their associates for providing corporate guarantee, in that circumstances, no service tax is payable by the appellant. Moreover, the demand raised in the show cause notices are on the basis of assumption and presumption presuming that their associates have received the loan facilities from the financial institution at lower rate, therefore, the differential amount of interest is consideration, but there is no such evidence produced by the revenue on that behalf. The appellant is not liable to pay any service tax on corporate guarantee provided by the appellant to various banks/financial institutions on behalf of their holding company/associate enterprises for their loan or over draft facility under Banking and Financial Institutions after or before 01.07.2012 - the demand of service tax on corporate guarantee provided by the appellant is set aside. Imposition of penalty - HELD THAT - The charges leviable on account of prime location charges etc., the appellant has already paid service tax along with interest before issuance of the show cause notice. Therefore, in terms of Section 73(3) of the act, the proceedings were not required to be initiated against the appellant, therefore, penalty imposed on the appellant is set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability of service tax on corporate guarantee provided by the appellant.
2. Imposition of penalty for non-payment of service tax on preferential location charges recovered from flat owners.

Analysis:
1. The appellant contested the service tax demand imposed on them for providing corporate guarantees to financial institutions on behalf of their associates. The Revenue alleged the activity falls under Banking and Finance Institution Services. However, the appellant argued they did not receive any consideration for providing the guarantees. The Tribunal noted that no evidence was presented by the Revenue to support the assumption that associates received loan facilities at lower rates, making the differential interest amount a consideration. Consequently, the Tribunal held that since the appellant did not receive any consideration, they are not liable to pay service tax on corporate guarantees provided before or after 01.07.2012.

2. Regarding the charges collected from flat owners for preferential location and other relevant charges, the appellant had already paid the service tax along with interest before the show cause notice was issued. The Tribunal observed that as per Section 73(3) of the act, proceedings were not required to be initiated against the appellant in such a scenario. Therefore, the penalty imposed on the appellant for non-payment of service tax on these charges was set aside. The impugned order was consequently set aside, and the appeal was allowed with consequential relief.

This judgment clarifies the liability of service tax on corporate guarantees and the applicability of penalties for non-payment of service tax on specific charges, providing a clear legal interpretation in favor of the appellant based on the lack of consideration received and timely payment of service tax in the second scenario.