2024 (5) TMI 327 - AT - Service Tax

Tribunal Confirms No Service Tax on Corporate Guarantees Provided Without Consideration, Dismissing Revenue's Appeal.

Commissioner, Central Goods and Service Tax, New Delhi Versus M/s. Air Liquide North India Pvt. Ltd.

The Tribunal upheld the decision to drop the service tax demand on the 'corporate guarantee' provided without consideration by the respondent. The ... Levy of service tax - act of providing ‘corporate guarantee’ to the respondent for grant of loan from the banks without any consideration - HELD THAT:- There has been a consistent finding in all the decisions that the party had provided corporate guarantee on behalf of its sister concern to its lenders, who had not charged any commission or fee for providing guarantee and hence such activity is not chargeable to service tax. The observations made by this Tribunal in the latest decision in M/s.Pharmax Corporation Ltd. [2024 (3) TMI 1179 - CESTAT NEW DELHI] where it was held that 'The service provider shall be liable to pay service tax on the consideration which it receives for providing a taxable service. Any amount which is received but which is not a consideration for providing a taxable service is not exigible to service tax. Similarly, if a service is rendered, but no consideration is received no service tax can be charged. It is for the reason that if the consideration received is zero any percentage will be zero itself.' In the present case, it is found from the show cause notice, order-in-original and the impugned order that no consideration has been paid by the respondent in lieu of the corporate guarantee and in view of the judicial pronouncements, there are no reason to distinguish the same in the facts of the given case. Consequently, no service tax is leviable on the respondent on account of ‘corporate guarantee’. The impugned order deserves to be upheld - appeal of Revenue dismissed. Issues:The issue involves the appeal against the dropping of service tax demand on 'corporate guarantee' by the Revenue.Summary:The case concerns the demand of service tax on 'corporate guarantee' provided without consideration by the respondent to obtain loans from foreign banks. The Revenue issued a show cause notice for service tax under Reverse Charge Mechanism. The demand for the period post 01.07.2012 was dropped by the Commissioner as no consideration was paid for the corporate guarantee. The Revenue challenged this decision, arguing that service tax should be levied. The Tribunal referred to various decisions, including one by the Supreme Court, which held that providing corporate guarantees without consideration is not subject to service tax.The Tribunal noted that in all relevant decisions, it was established that providing corporate guarantees without charging any commission or fee does not attract service tax. The Tribunal cited a recent decision to support this position, emphasizing that service tax can only be charged on consideration received for taxable services. Since no consideration was paid for the corporate guarantee in this case, the Tribunal upheld the impugned order dropping the service tax demand. Consequently, the appeal by the Revenue was dismissed, and no service tax was deemed leviable on the respondent for the 'corporate guarantee'. The issue of extended period of limitation or imposition of interest and penalty did not survive.In conclusion, the Tribunal upheld the impugned order and dismissed the appeal by the Revenue, deciding that no service tax is chargeable on the respondent for providing 'corporate guarantee'.