2023 (10) TMI 1089 - AT - Service Tax

Legality of issuing SCN and levy of penalty - service tax paid before the issuance of show-cause notice - levy of service tax under Banking and Other Financial Services on their act of providing bank guarantees to their group companies. Issuance of SCN and levy of penalty - HELD THAT - Section 73 (3) provides that the Central Excise Officer shall not serve any notice under sub-Section 1 of Section 73 where the assessee pays the service tax. The only exception to such non-issuance of show-cause notice is provided under sub-Section 4. Sub-Section 4 is attracted when the elements like fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of this Chapter or of the Rules made there under with intent to evade payment of service tax - the Courts and Tribunals have been consistently holding that mere non-obtaining registration, nonpayment of service tax and non-filing of ST-3 Returns cannot be a reason to allege suppression etc. and that a positive act on the part of the assessee with intent to evade payment of tax has to be established. Looking into the facts and circumstances of the case, the extended period is not invocable and hence, penalty cannot be imposed on the service tax which stands paid before the issuance of show-cause notice. Levy of service tax under Banking and Other Financial Services on their act of providing bank guarantees to their group companies - HELD THAT - The Department has not adduced any evidence to the effect that the appellants have received any consideration in providing bank guarantees. This Bench in the case of appellant s group company in M/S DLF PROJECT LIMITED VERSUS C.C.E S. T- GURGAON I 2020 (6) TMI 418 - CESTAT CHANDIGARH have decided the issue in their favour holding that 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 appeal id allowed.

Summary

Issues involved: The issues involved in the judgment are (i) whether the Revenue was correct in issuing show-cause notice and imposing penalty in respect of Preferential Location Services wherein the appellants have paid the applicable service tax before the issuance of show-cause notice and (ii) whether the appellants are required to pay service tax under the Head "Banking and Other Financial Services" on their act of providing bank guarantees to their group companies.

Issue (i) - Preferential Location Services:
The appellants, engaged in various services, were issued show-cause notices for non-payment of service tax on certain activities. The appellants contended that they had paid the applicable tax before the issuance of the notice, invoking Section 73(3) which prohibits the issuance of a notice if service tax is paid. The Tribunal held that the Revenue failed to establish elements like fraud or suppression of facts to warrant the notice. Mere non-payment of tax cannot be equated to suppression, and a positive intent to evade tax must be proven. As the tax was paid before the notice, the extended period was not applicable, and penalty imposition was unjustified.

Issue (ii) - Banking and Other Financial Services:
Regarding the provision of bank guarantees by the appellants to their group companies, the Department alleged tax liability under Banking and Other Financial Services. The appellants argued that they did not receive any consideration for providing guarantees, and the Department's assumptions lacked evidence. The Tribunal referenced a previous case involving the appellant's group company where it was established that no consideration was received for the guarantees provided. The absence of evidence supporting the Department's claims led to the Tribunal ruling in favor of the appellants, stating that no service tax was payable on the corporate guarantees provided.

Significant Legal References:
The Tribunal cited Section 73 of the act to determine the validity of issuing a show-cause notice post-tax payment. It emphasized the need for establishing intent to evade tax for penalty imposition. Additionally, the Tribunal referred to a Co-ordinate Bench decision highlighting the importance of "consideration" in determining taxability under the Finance Act, emphasizing the requirement of both a "provider" and the flow of consideration for a service to be taxable.

Conclusion:
The Tribunal allowed the appeal on both issues, finding in favor of the appellants. The judgment emphasized the importance of establishing intent to evade tax for penalty imposition and the necessity of evidence to support tax liabilities. The decision highlighted the legal principles surrounding the issuance of show-cause notices post-tax payment and the requirement of consideration for determining taxability under the Finance Act.