The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has quashed service tax demand on corporate guarantees raised after 5 years.
The bench of Justice Dilip Gupta (President) and P. V. Subba Rao (Technical Member) has observed that the confirmation of demand of service tax under corporate guarantees for the Financial Year 2017-18 cannot be sustained. The confirmation of demand of corporate guaranties for the Financial Year 2013-14 has been found to be beyond five years and, therefore, barred by limitation.
The appellant/assessee is engaged in providing construction of commercial or industrial building services. It claims to have discharged service tax on this service. It is also in receipt of legal and professional services, and works contract service which are chargeable to service tax under reverse charge mechanism.
The appellant claims that it discharged service tax liability on the advance receipts on account of construction services and on legal services under reverse charge mechanism. During the period 2013-14 to 2017-18, the appellant also gave corporate guarantees to various banks for credit facility sanctioned to associated enterprises.
A show cause notice was served upon the appellant demanding service tax on Legal Services, Corporate Guarantee and advances from customers.
The assessee contended that the service tax on corporate guarantees could not have been confirmed. The service tax demand as confirmed in the order, pertains to the financial year 2013-14. This demand is time-barred as it exceeds even the extended five-year limitation period stipulated under section 73(1) of the Finance Act.
The CESTAT relied on the decision of the Supreme court in the case of Commissioner of CGST and Central Excise vs. M/s. Edelweiss Financial Services Ltd. in which it was held that issuance of corporate guarantee to a group company without consideration would not fall within banking and other financial services and is therefore not taxable service. He would also read Section 65B (44) of the Finance Act 1994 to point out that the definition of service would indicate that it relates to only such service which is rendered for valuable consideration.
The tribunal upheld the confirmation of demand towards service tax with penalty and interest under the legal services head for the period 2016-17.
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Case Details
Case Title: M/s. Wellworth Project Developers Private Limited Versus Commissioner of CGST
Case No.: Service Tax Appeal No. 50259 of 2024
Date: 10.01.2025
Counsel For Appellant: Shaubhik Gupta
Counsel For Respondent: Jaya Kumari
