Tribunal grants waiver to non-bank for service tax on guarantees

The Tribunal granted the applicant, a Banking Financial Company, a waiver of pre-deposit of service tax, interest, and penalties for issuing guarantees to corporate entities. The Tribunal found that as the applicant was not a banking company and service tax was payable only on bank guarantees issued by banks, the applicant had a prima facie case for a complete waiver of pre-deposit. The Tribunal noted discrepancies in the guarantees issued by the applicant, where the word "Bank" was incorrectly mentioned instead of the applicant itself, leading to the waiver being granted for the entire amount of service tax, interest, and penalties.

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Issues:
Waiver of pre-deposit of service tax, interest, and penalties confirmed against the applicant for issuing guarantees to corporate entities.

Analysis:
The applicant, a Banking Financial Company, issued guarantees to corporate entities and charged a commission. The Revenue contended that the applicant was required to pay service tax under Banking and Financial Institution Services. Show cause notices were issued, and orders confirming the demand of service tax, interest, and penalties for the period 2004-2005 to 2009-2010 were challenged by the applicant seeking waiver of pre-deposit.

The applicant argued that it did not fall under the definition of banking and other financial services as per Section 65(12) of the Finance Act, 1994, as it was not a banking company and did not hold a banking license. The applicant claimed that only guarantees issued by banks were liable to service tax, and since the guarantees issued by the applicant did not involve any bank, they were not required to pay service tax on the commissions received for executing guarantees. Thus, the applicant sought a waiver of pre-deposit of service tax, interest, and penalties.

The Revenue opposed the applicant's contention, stating that the guarantees issued by the applicant were indirectly covered by bank guarantees since the loans advanced by banks were secured by the guarantees. It was argued that the guarantees issued by the applicant were recoverable from the bank, and hence, service tax was applicable to these transactions. The Revenue claimed that the demand of service tax against the applicant was rightly confirmed.

After hearing both sides and considering the submissions, the Tribunal noted that the applicant was not a banking company and that service tax was payable only on bank guarantees issued by banks. The Tribunal observed discrepancies in the guarantees issued by the applicant, where the word "Bank" was mentioned incorrectly instead of the applicant itself. As the guarantees did not involve any actual bank as a party, the Tribunal found that the applicant had a prima facie case for a complete waiver of pre-deposit. Consequently, the Tribunal waived the requirement of pre-deposit for the entire amount of service tax, interest, and penalties, staying the recovery during the pendency of the appeals.

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