2024 (9) TMI 1494 - AT - Service Tax

Levy of service tax with interest and penalty - banking and other financial services provided by the appellant to the associate enterprise - giving corporate guarantees to various banks/financial institutions on behalf of the associate enterprises for their loan/overdraft facility - HELD THAT - It is not in dispute that such corporate guarantees were provided by the appellant without any consideration. This is also clear from the SCN which mentions that no commission or interest or fee was charged by the appellant from the associate enterprises for providing corporate guarantee. This issue has now stand settled by a decision of the Tribunal in COMMISSIONER OF CGST CENTRAL EXCISE MUMBAI EAST VERSUS EDELWEISS FINANCIAL SERVICES LTD 2022 (2) TMI 1359 - CESTAT MUMBAI . The department contended that service tax would be leviable on corporate guarantee given for subsidiary company without any consideration. This contention was not accepted by the Tribunal and it was observed 'Any activity must, for the purpose of taxability under Finance Act, 1994, not only, in relation to another, reveal a 'provider', but also the flow of 'consideration' for rendering of the service. In the absence of any of these two elements, taxability under section 66B of Finance Act, 1994 will not arise. It is clear that there is no consideration insofar as 'corporate guarantee' issued by respondent on behalf of their subsidiary companies is concerned.' The Civil Appeal filed by the department against the aforesaid order for the Tribunal in Edelweiss Financial Services was dismissed by the Supreme Court and the decision in COMMISSIONER OF CGST AND CENTRAL EXCISE VERSUS M/S EDELWEISS FINANCIAL SERVICES LTD. 2023 (4) TMI 170 - SC ORDER where it was held that 'No effort was made on behalf of the Revenue to assail the above finding or to demonstrate that issuance of corporate guarantee to group companies without consideration would be a taxable service. In these circumstances, in view of such conclusive finding of both forums, we see no reason to admit this case basing upon the pending Civil Appeal, particularly when it has not been demonstrated that the factual matrix of the pending case is identical to the present one.' Thus, the impugned order dated 07.12.2018 deserves to be set aside and is set aside - The appeal is, accordingly, allowed.

Summary

Issues:
1. Whether providing corporate guarantees without consideration can be subjected to levy of service tax.

Analysis:
The appeal was filed by M/s. Omaxe Chandigarh Extension Developers Private Limited to challenge the order passed by the Commissioner Central Tax confirming the demand under "banking and other financial services" for providing corporate guarantees to associate enterprises without any consideration. The issue in consideration was whether the act of providing corporate guarantees without consideration could be subjected to service tax. It was noted that the appellant provided corporate guarantees without charging any commission, interest, or fee from the associate enterprises. The Tribunal referred to a previous decision in Commissioner of CGST & Central Excise, Mumbai East vs. Edelweiss Financial Services Ltd., where it was held that taxability under the Finance Act, 1994 requires both a 'provider' and 'consideration' for the service. As there was no consideration involved in the corporate guarantees issued by the appellant, the service tax levy was not applicable.

The department filed a Cross-Objection to examine the penalties imposed under sections 76 and 77 of the Finance Act and whether the matter should be remanded for a speaking order. The Tribunal cited the decision in Edelweiss Financial Services case, where it was established that providing corporate guarantees without consideration does not attract service tax. The Supreme Court also dismissed the Civil Appeal filed by the department against the Tribunal's decision. Therefore, based on the precedents set by the Tribunal and the Supreme Court, the impugned order confirming the demand for service tax on corporate guarantees without consideration was set aside, and the appeal was allowed. Consequently, the Cross-Objection filed by the department was dismissed.

In conclusion, the judgment clarified that providing corporate guarantees without any consideration does not fall under the purview of service tax as per the provisions of the Finance Act, 1994. The decisions in the Edelweiss Financial Services case, upheld by both the Tribunal and the Supreme Court, established the non-taxability of such transactions. The appeal was allowed, and the impugned order was set aside, providing a clear precedent for similar cases in the future.