In a ruling in favour of DLF Home Developers, the Chandigarh bench of the Customs, Excise & Service Tax Appellate Tribunal(CESTAT) has held that service tax on Cooperate Guarantee is not demandable in the absence of evidence to prove receipt of consideration from Financial Institution.
The appellants are providing Business Auxiliary Services, Business Support Services, Construction of Complex Services and Renting of Immovable Property Services and have registered themselves for the same. During the audit, it was found that the appellants have received consideration on account of golf course activities which was shown as income but no service tax was paid on the same; it was also observed that the appellants have not appropriated service tax on Construction of Complex Service, Renting of Immovable Property Service, Preferential Location Service and Banking and Other Financial Services.
Two show-cause notices were issued to the appellants demanding service tax under different Heads; the show-cause notices were adjudicated vide OIO dated 09.06.2017 wherein certain demands were confirmed and certain demands were dropped.
It was submitted that the Commissioner has dropped the demand on Renting of Immovable Property Services and construction of Residential Complex Services; however, the Commissioner has confirmed tax and penalty on Banking and Other Financial Services and has confirmed penalty on Preferential Location Services on which the applicable tax was paid before issuance of show-cause notice.
A two-member bench of Mr S S Garg, Member (Judicial) and Mr P Anjani Kumar, Member (Technical) observed that the appellant has not received any consideration from either the financial institutions or from their associates for providing a corporate guarantee, in that circumstances, no service tax is payable by the appellant. Moreover, the demand raised in the show cause notices are based on assumption and presumption presuming that their associates have received the loan facilities from the financial institution at a lower rate, therefore, the differential amount of interest is considered, but there is no such evidence produced by the revenue on that behalf.
In those circumstances, the CESTAT held that “the appellant is not liable to pay any service tax on the corporate guarantee provided by the appellant to various banks/financial institutions on behalf of their holding company/associate enterprises for their loan or overdraft facility under Banking and Financial Institutions after or before 01.07.2012.
The Tribunal set aside the impugned order qua demand of service tax on the corporate guarantee provided by the appellant.
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