2019 (2) TMI 1249 – CESTAT CHENNAI – TMI – Banking and Other Financial Services” (BOFS) – providing corporate guarantee for a consideration – whether the commission received / paid by the appellant for providing / receiving corporate guarantees (CGs) to/from their associate / subsidiary companies would be exigible to service tax under the category of BOFS for the purpose of Finance Act, 1994?
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Held that:- There is no allegation that the appellant herein has performed any of the category of services listed in Sl. No. (i) to (viii) under section 65(12)(a) ibid. The activity of “providing bank guarantee‟ under section 65(12)(ix) ibid under which head the show cause notice has premised the proposed demand, is under the residual category of services listed as “other financial services‟. But here also, a comprehensive and specific list of such residual services has been given and made absolute by usage of the word “namely‟ before such listing – only the services which
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king laws. Corporate guarantee is actually an in-house guarantee and is not issued to customers generally.
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There is no merit in the propositions of Revenue that the guarantee issued by the appellant was only “providing bank guarantee‟ by a body corporate and secondly, the commission received / paid for issue / receipt of such guarantees to / from associate / subsidiary companies are exigible to service tax liability under section 65(12)(a)(ix) of Finance Act, 1994.
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The activity of issue of corporate guarantees by the appellant from their associate / subsidiary companies in India and also the procurement / receipt of corporate guarantee from their parent / associate company abroad will not come within the fold of section 65(12)(a) ibid and in particular sub-clause (ix) of that provision. The appellant succeeds on merits.
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Time limitation – revenue neutrality – Held that:- The show cause notice dated 22.4.2010, 22.10.2010 and 19.9.2011 have been issued for the peri
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copper products falling under Chapter 74 of CETA, 1985. Pursuant to audit scrutiny by department officers, it emerged that appellants had received guarantee commission from their associate / subsidiary companies for providing corporate guarantee. It was further noticed that appellants have also paid consideration to M/s. Vedanta Resources Plc. Inc. London (herein after referred to as Vedanta) during the year 2008 – 09 for getting corporate guarantee to secure external commercial loans. Department took the view that the amount so received / paid by the appellant from / to their associate / subsidiary companies for providing corporate guarantee for a consideration would be exigible to service tax under the category of Banking and Other Financial Services (BOFS). In consequent, three show cause notices were issued to the appellants as under:- Date of the Show Cause Notice Period Involved Service Tax proposed by the department 22.4.2010 2004 – 05 to 2008 – 09 11,92,05,000/- (along with in
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these associate enterprises were called upon to furnish Corporate Guarantee for their business, it was the appellant who furnished the same. Till 2006 – 07, the appellant had not recovered any amount from the said associate / subsidiary companies. Even thereafter, they have recovered guarantee commission only from some of the said associate / subsidiary companies. The allegation of the department is that appellant has to pay service tax under reverse charge on the amount paid as guarantee commission to M/s. Vedanta Resources, London and also pay service tax on the amount received as guarantee commission from their associate / subsidiary companies for providing corporate guarantee. 3.1 The arguments of the ld. counsel for appellant was mainly two fold. Firstly, that appellant being a manufacturing company will not fit into the expression of anybody corporate‟ for providing Banking or Other Financial Services. Second limb of argument is that providing corporate guarantee‟ wi
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in ejusdem generis with the preceding words. Applying this clarification, it will be evident that what is covered under the scope of any body corporate‟ is a corporate which is similar to a bank or financial institution. This clarification also brings out that the intention of the Legislature was only to tax services which are provided by a bank or a financial institution or an institution similar to a bank / financial institution. 3.4 The second argument advanced is that as per the definition of BOFS what is covered is issuing a Bank Guarantee and not issuing Corporate Guarantee. The expression corporate guarantee‟ is not mentioned anywhere in the definition. Therefore, there can be no liability for issuing corporate guarantee since it is entirely different from Bank Guarantee. In the definition of BOFS under section 65(12) of Finance Act, the Legislature has used the expression namely‟ and specified the services on which service tax was leviable under that category,
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ody corporate‟ referred to in the definition of BOFS covered only such body corporates which are either a banking company or a financial institution or a non-banking financial company. On this settled legal position, the appellant is neither a banking company, a financial institution or even a non-banking financial company. The ld. counsel also relied on decisions in the case of Vidarbha Iron & Steel Corporation Ltd. Vs. Commissioner of Central Excise – 2014 (36) STR 324 (Tri.Mum.), Madras Vanaspathi Ltd. Vs. Commissioner of Central Excise – 2017 (3) GSTL 162 (Tri. Chennai) and Inox Air Products Ltd. Vs. Commissioner of Central Excise – 2015 (38) STR 19 (Mum.). 3.6 In respect of the tax confirmed under reverse charge mechanism in respect of commission paid to M/s. Vedanta, it is submitted that for the purpose of applying Section 66A, it is to be first established that the activity of issuance of corporate guarantee was covered under the taxable head of BOFS. Even assuming wit
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eover, time and again, departmental audits were conducted and in none of the audits the department could find any infirmity with non-payment of service tax on the alleged services of issuance of corporate guarantee. Hence invocation of extended period alleging suppression of facts is clearly illegal and unwarranted. 4. The ld. AR Shri A. Cletus supported the findings in the impugned order. He adverted to section 65(105)(zm) and argued that the taxable service of BOFS means any service provided or to be provided to any person by a banking company or a financial institution including a non-banking financial company or any other body corporate‟ or commercial concern in relation to banking and other financial services. He submitted that after the amendment, the services of banking and other financial services rendered by any body corporate‟ would be a taxable service. Such body corporate need not be a Bank of financial institution. The adjudicating authority has rightly analyze
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ppellant is a body corporate and has rendered the activity of issuing a corporate guarantee. 4.2 The ld. AR contended that the taxable service under Section 65(105)(zm) speaks where services to any person inter alia by any body corporate in relation to banking or other financial services. The corporate guarantee issued by body corporate is very much in relation to bank or any other financial services, since only based on such corporate guarantees, the banks would further issue bank guarantee. 4.3 The ld. AR relied upon the Tribunal‟s decision in Bank of Baroda Vs. Commissioner of Service Tax, Mumbai – 2016 (43) STR 141 (Tri. Mumbai) and submitted that it is laid down that it is not significant as to what is the nature of the person who is providing the service, but if the service is covered under the definition, such service is liable to service tax. 4.4 He further drew attention to the Tribunal decision in Hind Filters Ltd. Vs. Commissioner of Central Excise, Indore – 2017 (51)
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the purpose of Finance Act, 1994. 6.1 For better understanding of the issue, it would be useful to reproduce the definition of BOFS as appearing in Section 65(12) of the Finance Act, 1994. "Banking and Other Financial Services" means – (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or [commercial concern]*, namely:- (i) financial leasing services including equipment leasing and hire-purchase; Explanation.-For the purposes of this item, "financial leasing" means a lease transaction where- (i) contract for lease is entered into between parties for leasing of a specific asset; (ii) such contract is for use and occupation of the asset by the lessee; (iii) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges; and (iv) the lessee is entitled to own, or has the option to own, the asset at the end of the lease per
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nk accounts;"; (b) foreign exchange broking and purchase or sale of foreign currency including money changing provided by a foreign exchange broker or and authorised dealer in foreign exchange or an authorised money changer, other than those covered under sub-clause (a); [Explanation. – For the purposes of this clause, it is hereby declared that "purchase or sale of foreign currency, including money changing" includes purchase or sale of foreign currency, whether or not the consideration for such purchase or sale, as the case may be, is specified separately;] 6.2 The taxable service is defined under section 65(105)(zm) as under:- "Taxable Service" means any service provided or to be provided to any person, by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, in relation to banking and other financial services 6.3 After analysis of the above definitions, the main take aways f
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able under BOFS or not. There is no allegation that the appellant herein has performed any of the category of services listed in Sl. No. (i) to (viii) under section 65(12)(a) ibid. The activity of providing bank guarantee‟ under section 65(12)(ix) ibid under which head the show cause notice has premised the proposed demand, is under the residual category of services listed as other financial services‟. But here also, a comprehensive and specific list of such residual services has been given and made absolute by usage of the word namely‟ before such listing. The word namely‟ has been thoroughly analysed and interpreted by the Hon ble Apex Court in State of Karnataka & Ors. Vs. Balaji Computers & Others in Appeal (Civil) 1120 of 2006 dated 7.12.2006 as under:- For proper construction, we deem it necessary to explain how the word 'namely' has been described in various dictionaries. In Black's Law Dictionary, Fifth Edition, the word 'namely&#
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of Bombay Vs. Bombay Education Society reported in AIR 1954 SC 561, had an occasion to examine the meaning of the words 'that is to say' which have been described as 'explanatory or illustrative words and not words either of amplification or limitation . Applying the ratio of the aforesaid judgment laid down by the Apex Court, we find ourselves in agreement with the ld. counsel for appellant that only the services which are listed in Section 65(12)(a)(ix) ibid will be exigible to service tax under that group. 6.5 The show cause notice dated 20.10.2010 has proposed the demand of service tax under BOFS on the premise that any other body corporate that is providing bank guarantee for a consideration is liable to pay service tax from the date 10.9.2004 . Para 7 of the same notice further alleges that In the present case, the assessee stood guarantee to their associate / subsidiary companies for providing corporate guarantee for a consideration which is taxable. Further, the as
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mer to the beneficiary bank guaranteeing the payment in case of default by customer. A corporate guarantee is a guarantee given by the corporate to cover their own exposure or exposure of some other related entity to their bank. Bank guarantees are issued by Bank on a regular basis as part of their business of Banking. It is nobody‟s case that appellant is doing the business of providing corporate guarantee on a regular basis. The corporate guarantee that was entered into by appellant is only for the limited purpose of securing loans to its subsidiaries. Corporate guarantees are issued in order to safeguard the financial health of their associate enterprises and to provide it support. For banks, providing bank guarantee is part of their regular course of business and they charge rate on the higher side. Further, these are fool proof instruments of security of the customer and failure to honour the guarantee is treated as a deficiency of services of the bank under banking laws. Co
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in its fold for the purposes of liability to service tax, services provided in relation to bank and other financial services and since the issue of corporate guarantee by the appellants was only to facilitate issue of bank guarantee by the bank, the activity by the appellant is nothing but a service in relation to issue of banking and other financial services. 6.10 This argument is flawed. In the first place, as already discussed above, the corporate guarantees were not issued to facilitate issue of bank guarantees by the banks but only as an instrument for obtaining external commercial borrowings. True, the words in relation to are very much present in the definition of taxable services under section 65(105)(zm) ibid. Nonetheless, the services that would come under this score will necessarily have to be those services which are intrinsically or inextricably connected with any of the services of banking or financial services which have been comprehensively listed in section 65(12) ibid
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