Service Tax leviable on ‘Corporate Guarantee’ and ‘Credit Protection Fee’: CESTAT [Read Order]

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), observed that service tax is leviable on ‘corporate guarantee’ and ‘credit protection fee’.

The appellant in the present matter is Hindustan Construction Company Ltd. The confirmation of duty demand of 6,03,08,357/- under section 73(2) of the Finance Act, 1994 along with statutory interest on the confirmed amount as per provision of section 75 of the Finance Act, 1994 with equal penalty under Section 78 and additional penalty under Section 77 of the said Act against the appellant for providing ‘corporate guarantee’ to one M/s Lavasa Corporation Ltd against loan obtained from various financial institutions in exchange of ‘credit protection fee’ is assailed in the appeal.

The Counsel for the appellant, Bharat Raichandani, submitted that the allegations against appellant that credit protection fee and fee for corporate guarantee received by the appellant from M/s Lavasa Corporation Ltd can never be considered as “Banking and Other Financial Services” for the reason that appellant is neither a “body corporate” nor a “commercial concern” as defined under section 65(12) of the Finance Act, 1994 since it is a registered company registered under the Indian Companies Act, 1956.

It was also argued that there is no service tax liability against ‘corporate guarantee’ since the same is excluded from the definition provided in Section 65(12) of the Finance Act, 1994 and exclusion of ‘corporate guarantee’ extended to holding company for the business activity of its subsidiary companies from the ambit of service tax liability stood decided by this Tribunal in the case of DLF Cyber City Developers Ltd vs. Commissioner of Service Tax, Delhi – IV.

The Authorised Representative for respondent-department, Vinod Kumar, objected the submissions on the ground that there is no thin line distinction available between ‘corporate guarantee’ and ‘bank guarantee’.

A Two-Member Bench comprising Dr Suvendu Kumar Pati, Judicial Member and Anil G Shakkarwar, Technical Member observed that “The appellant having received consideration against providing guarantee to its related company M/s Lavasa Corporation Ltd in the form of ‘corporate guarantee’ and ‘credit protection guarantee’ service is liable to pay service tax and, therefore, demand raised against the appellant is justified except for the extended period since the issue remained unsettled due to divergent opinion expressed by different judicial forums.”

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