2023 (5) TMI 193 - AT - Service Tax

Classification of services - providing services without consideration (free) to its associate companies - Banking and other Financial Services? - activity of giving corporate guarantee - period 2010-11 to 2014-15 - HELD THAT - The analysis of the definition of BOFS alongwith its taxability helps us to conclude that this definition is a comprehensive one instead of it being the inclusive one. It also clarifies that under service of BOFS only such persons can be made liable to service tax who can be classified in the category of being called as Banking/ non-banking Company, Financial Institutions, any other body corporate or a commercial concern. Above all, the definition carves out the list of category of the persons who would be excisable to tax under the category. Also the services provided by such persons which alone would be excisable to such taxes as have been comprehensively and specifically listed out as is apparent from the use of words namely / means in the said definition under section 65 (12) of the Finance Act. The present appellant do not fall under any of such categories/ lists, as there is no denial to the fact that appellant is not in business of financing, it is neither a banking nor a non-banking financial institute. Nor it is any other body corporate or commercial concern which is into the business of extending financial supports. This fact is sufficient for us to hold that appellant cannot be covered under the category of such persons who would be excisable to tax under the category of BOFS). The Show Cause Notice itself recites that the appellant has given the corporate guarantee on behalf of their group companies but has not charged any commission or interest or fees for providing the said corporate guarantee. Same is also apparent from the letter given by the Syndicate Bank from where was issued the impugned corporate guarantee that the loanee company has undertaken that no commission is paid by them to their corporate guarantor. Thus, it becomes clear that there is no element of consideration involved in the present case applying the definition of service - the question of the activity of extending corporate guarantee by the appellant to its associate companies cannot be called as service in terms of above provision in section 65 B (44) of the Act. The Larger Bench of this Tribunal in the case of M/S BHAYANA BUILDERS (P) LTD. OTHERS VERSUS CST, DELHI OTHERS. 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) where it was held that Value of free supplies by service recipient do not comprise the gross amount charged under Notification No. 15/2004-ST, including the Explanation thereto as introduced by Notification No. 4/2005-ST. There are no reason to differ from this decision - appeal allowed.

Summary

Issues Involved:

1. Whether the activity of giving corporate guarantee is taxable as Banking and other Financial Services (BOFS).
2. Whether there was any consideration involved in providing the corporate guarantee.
3. Interpretation of the term "consideration" under the Finance Act, 1994.

Issue-wise Comprehensive Details:

1. Taxability of Corporate Guarantee as BOFS:

The primary issue was whether the activity of giving a corporate guarantee by the appellant falls under the taxable category of Banking and Other Financial Services (BOFS) as defined in Section 65(12) of the Finance Act, 1994. The Tribunal analyzed the definition of BOFS and concluded that only those entities classified as Banking/non-banking Companies, Financial Institutions, any other body corporate, or commercial concerns engaged in financial services can be taxed under BOFS. The appellant, not being in the business of financing, nor classified as a banking or financial institution, does not fall under the category of persons excisable to tax under BOFS.

2. Consideration for Providing Corporate Guarantee:

The Tribunal observed that for any activity to be considered a service, there must be an element of 'consideration' as per Section 65 B (44) of the Finance Act, 1944. The appellant did not receive any commission, interest, or fees for providing the corporate guarantee, as confirmed by the Show Cause Notice and the letter from Syndicate Bank. Therefore, the activity of extending the corporate guarantee cannot be termed as a service in the absence of consideration.

3. Interpretation of "Consideration":

The Tribunal referred to the definition of "consideration" under the Finance Act and the judgment in Bhayana Builders v. CST, Delhi, which clarified that consideration must be a reasonable equivalent or other valuable benefit passed from the promisor to the promisee. The Tribunal concluded that since no consideration flowed from the service recipient to the service provider, the corporate guarantee provided by the appellant does not constitute a taxable service.

Conclusion:

The Tribunal set aside the order under challenge, holding that the appellant is not liable to pay service tax on the corporate guarantee provided to its associate companies, as there was no consideration involved, and the appellant does not fall under the taxable category of BOFS. The appeal was allowed with consequential benefits.