‘Service Tax cannot be levied when there is no flow of Consideration’: CESTAT sets aside Rs. 31.5 lakhs demand on Corporate Guarantee [Read Order]

In this case, the assessee, M/s. Wellworth Project Developers Pvt., had filed an appeal against the Commissioner, which confirmed the demand of service tax with interest and

penalty by invoking the extended period of limitation contemplated under section 73(1) of the Finance Act, 1994.

Coming to the facts of the case, the assessee is engaged in providing construction ofcommercial or industrial building services. The appellant claims that it discharged service tax liability on the advance receipts on account of construction services and on legal services under the reverse charge mechanism. During the period 2013-14 to 2017-18, the appellant also gave corporate guarantees to various banks for credit facilities sanctioned to associated enterprises.

On 11-10-2019, a show cause notice (SCN) was issued to the appellant, demanding service tax of Rs. 2,40,96,546. The demand of Rs. 2,24,43,944 is with respect to the financial year (FY) 2013-14 and was made under different heads, such as legal services and corporate guarantee.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

One of the issues in this case was in relation to the demand of service tax on corporate guarantees for the financial year 2017-18. An amount of Rs 31.5 lakhs was demanded towards corporate guarantees for the financial year 2017-18.

The assessee’s counsel by relying on the decision of the apex court in the case of Commissioner of CGST and Central Excise v. Edelweiss Financial Services (2023) 112 G.S.T.R. 14 (S.C.)

Contended that no service tax on corporate guarantees could be confirmed.

The Supreme Court in the above case had noted that “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.”

Step by Step Guidance for Tax Audit & E-filing, Click Here

The CESTAT, by relying on the above judgement, the confirmation of demand of service tax under corporate guarantees for the FY 2017-18 will not be sustain.

The CESTAT, comprising Justice Dalip Gupta (President) and P.V. Subba Rao (Technical Member), set aside the demand on corporate guarantees for the FY 2017-18.

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