Service Tax for providing Corporate Guarantee not leviable if no commission received: CESTAT allows appeal [Read Order]

The Mumbai bench of Customs, Excise and Service Tax Appellate Tribunal held that the amount given as Corporate Guarantee is not liable for service tax if there is no commission and allowed the appeal by UltraTech Cement Ltd (the Appellant) against the Commissioner of CGST (The Respondent).

The appellant was engaged in the business of manufacturing various categories of cement and was registered with the Service Tax department as an Input Service Distributor (ISD) for providing services other than those listed in the negative list. They had set up a wholly owned subsidiary in Dubai viz., Ultra Tech Cements Middle East Investments Limited (UCMEIL). The appellants being the promoter of the subsidiary company M/s UCMEIL, provided corporate guarantee to lender banks without affecting their cash flows.

The department issued the show cause notice, demanding service tax of Rs.33,57,64,719/- on the corporate guarantee given to the subsidiaries by the appellant ‘banking and other financial services’ asper Section 65 (12) of the Finance Act, 1994. This matter was adjudicated by the Commissioner of GST & Central Excise and confirmed the entire demand along with interest proposed for recovery in the show cause notice and further imposed penalties under Section 77 and 78 of the Finance Act 1994.

The bench consisting of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) after hearing both sides stated that the department had accepted that the appellants had not charged any commission/fees to the overseas companies as well as the companies situated in India for issuance of the corporate guarantee however, the service tax demand was confirmed based on the calculation of notional income made by the appellant as per the requirements under the Transfer Pricing under the Income Tax Act, 1961 and it was also stated that the Income Tax department had charged guarantee commission as arm’s length commission on the issuance of corporate guarantee to overseas companies.

The bench held that “Insofar as levy of service tax is concerned, the same should be on the amount of consideration received for provision of such service. In the present case, since there is no involvement of any commission amount in the form of consideration, the appellants cannot be saddled with the service tax liability as demanded in the impugned order” the bench relied on the decision of this Tribunal in the case of Commissioner of CGST & Central Excise Vs. Edelweiss Financial Services Ltd., 2022.

Hence the appeal was allowed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates