The Supreme Court of India has held that a valid consideration is necessary for a service to be taxable as per section 65(44) of Finance Act, 1994 and dismissed the GST departments’ appeal.
Edelweiss Financial Services Ltd., the concurrent finding in favour of the assessee recorded by the Principal Commissioner GST which was upheld by the CESTAT through the impugned order on 16.02.2022.
Mr Bharat Rai Chandani, counsel for the assessee argued that issuance of corporate guarantee to a group company without consideration would not fall within the banking and other financial services and is therefore not a taxable serviceas per Section 65 (12) of the Finance Act, 1994.
Further stated that as per Section 65B (44) of the Finance Act 1994, the definition of service would indicate that it relates to only such service which is rendered for valuable consideration.
The assessee had not received any consideration while providing a corporate guarantee to its group companies. 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.
Any activity must, for taxability under the Finance Act, 1994, not only, about another, reveal a ‘provider’, but also the flow of ‘consideration’ for the rendering of the service. In the absence of any of these two elements, taxability under section 66B of the Finance Act, 1994 will not arise. There is no consideration insofar as the ‘corporate guarantee’ issued by respondents on behalf of their subsidiary companies is concerned.
A Coram comprising of Justice Hrishikesh Roy and Justice Manoj Misra observed that since the assessee had not received any consideration while providing a corporate guarantee to its group companies and would not be a taxable service.
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