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2024 (7) TMI 619 - AT - Service TaxLevy of service tax - providing corporate guarantees to overseas entities - HELD THAT - In the instant case there was no such calculation even made by the Income Tax Authorities or by the Appellant to make a declaration on account of transfer pricing and even the show-cause notice as well as Order-in-Original clearly indicate that no form of consideration-neither monetary nor in any other method, had flown from the corporate guarantor namely the present Appellant to the banks in favour of overseas entities. This being the fact on record and having guided by the precedent decision of Hon'ble Supreme Court rendered on the issue, as noted above including in the case of COMMISSIONER OF CGST AND CENTRAL EXCISE VERSUS M/S EDELWEISS FINANCIAL SERVICES LTD. 2023 (4) TMI 170 - SC ORDER that corporate guarantees is not taxable to Service Tax without payment of consideration against such guarantee, the following order is passed. The order passed by the Principal Commissioner of GST CX, Mumbai East is hereby set aside - Appeal allowed.
Issues:
Confirmation of Service Tax demand for providing corporate guarantees to overseas entities. Analysis: The judgment revolves around the confirmation of a Service Tax demand amounting to INR 56,05,40,379/- for the period between 01.04.2011 to 30.06.2017 raised through two show cause notices by the Principal Commissioner of GST & CX, Mumbai East. The Appellant, engaged in construction, issued corporate guarantees to its subsidiaries without any consideration, leading to the demand under the head of "banking & other financial services." The Appellant challenged the demand, arguing that the place of provision of service was outside India, making it not chargeable to Service Tax under Section 66B of the Finance Act, 1994. The Appellant also cited various tribunal decisions to support their case, emphasizing that without consideration, corporate guarantees do not qualify as a service under the Finance Act, 1994. During the appeal, the Appellant's Counsel argued that the order confirming the Service Tax demand on corporate guarantees for overseas entities was outside the scope of Service Tax levy. The Counsel referenced specific paragraphs of the show cause notice and the Order-in-Original to highlight that the guarantees were provided without consideration. On the other hand, the Authorised Representative for the Respondent supported the order passed by the Principal Commissioner. The Tribunal analyzed the case record and arguments presented. It noted that the consideration for the guarantees was calculated as notional income based on transfer pricing regulations, but neither party provided substantial evidence on this aspect. The Tribunal referred to a judgment on a similar issue involving Ultratech Cement Ltd., where the demand for Income Tax under transfer pricing against corporate guarantees to overseas companies was set aside due to the absence of guarantee fees. In the present case, no consideration flowed from the Appellant to the banks for the guarantees provided. Relying on precedent decisions, including those by the Supreme Court, the Tribunal concluded that corporate guarantees without consideration are not taxable to Service Tax. Consequently, the appeal was allowed, and the order confirming the demand was set aside. In conclusion, the Tribunal's decision was based on the absence of consideration for the corporate guarantees provided by the Appellant to overseas entities, aligning with previous judgments that established the non-taxability of such guarantees without payment of consideration.
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