The Hon’ble Supreme Court of India vide its order dated 17.03.2023 in the matter of Commissioner of CGST And Central Excise Vs. M/s Edelweiss Financial Services Ltd. in Civil Appeal Diary No. (s) – 5258 of 2023, upheld the order of Custom, Excise & Service Tax Appellate Tribunal, whereby the appeal filed by the revenue against the adjudication order dropping the demand proposed for providing Corporate Guarantee to Group Companies, was dismissed.

The Appellant (Revenue) filed the Appeal before the Hon’ble Court challenging the order of Custom, Excise & Service Tax Appellate Tribunal dated 16.02.2022, whereby the demand dropped by the adjudicating authority on providing Corporate Guarantee to Group companies under the category of ‘Banking and Other Financial Services’ was not interfered with.  Consequently, the revenue appeal was dismissed in view of the settled law in DLF Cyber City Developers Ltd. Vs. Commissioner of Service Tax, Delhi – V – 2019 (28) GSTL 478 (Tri. -Chan.) and also for the inevitability of consideration to make evident ‘a taxable service.’  No merit was found in the revenue’s appeal.

It was submitted on the behalf of the Revenue (Appellant) that this case is similar to Civil Appeal No. 428/2020 @ Diary No.42703/2019 (Commissioner of Service Tax Audit II Delhi IV Vs. M/S DLF Cyber City Developers Ltd.) and therefore, the matter should be admitted and tagged with the pending case.

Respondent’s Submissions: –

  • On the other hand, it was submitted on the behalf of the respondent that in terms of Section 65(12) of the Finance Act, 1994, issuance of corporate guarantee to a group company without consideration would not fall within Banking and other Financial Services and thus, not taxable.
  • Referring to Section 65B (44) of the Finance Act 1994, it was submitted the definition of service would indicate that it relates to only such service which is rendered for valuable consideration.
  • Thereafter, reference was made to the relevant para in the Commissioner’s order, wherein it was recorded that ‘It is not alleged or proved in the Show Cause Notice as to how the Assessee got any benefit from their subsidiaries in monetary or non-monetary terms for the Corporate Guarantees issued. Missing this vital point, valuation of the consideration using provisions of Section 67(1) of the Finance Act, 1994 become a futile exercise.’
  • Also, reference was made to the para of the judgment of the Tribunal, wherein it was held that ‘the criticality of ‘consideration’ for determination of service, as defined in section 65B (44) of Finance Act, 1994, for the disputed period after introduction of ‘negative list’ regime of taxation has been rightly construed by the adjudicating authority. 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’; and to another para ‘Consideration’ is the recompense for the ‘contractual’ undertaking that authorizes levy while ‘assessable value’ is a determination for computing the measure of the levy and the latter must follow the former.’

Held: –

  • The Hon’ble Court after considering the submissions made and facts of the case, found that in the present case the assessee had not received any consideration while providing Corporate Guarantee to its group companies.
  • It was found by the Hon’ble Court that there was no effort made on behalf of the Revenue to assail the above finding or to show that issuance of Corporate Guarantee to group companies without consideration would be a taxable service.
  • It was therefore, found by the Hon’ble Court that in view of such conclusive finding of both forums, there is no reason to admit this case based upon the pending Civil Appeal No. 428 @ Diary No.42703/2019, particularly when it has not been shown that the factual matrix of the pending case is identical to the present one.

The Hon’ble Court with the above findings, dismissed the Civil Appeal filed by the revenue.

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