M/s. Sterlite Industries India Ltd. Versus Commissioner of GST & Central Excise
Service Tax
2019 (2) TMI 1249 – CESTAT CHENNAI – 2019 (25) G. S. T. L. 277 (Tri. – Chennai), [2020] 74 G S.T.R. 473 (CESTAT – Chen)
CESTAT CHENNAI – AT
Dated:- 19-2-2019
Appeal No. ST/40042/2013 – Final Order No. 40318 / 2019
Service Tax
Hon'ble Ms. Sulekha Beevi C.S., Member ( Judicial ) And Hon'ble Shri Madhu Mohan Damodhar, Member ( Technical )
Shri Vishal Agarwal and Shri Akshit Malhotra, Advocates for the Appellant
Shri A. Cletus, Addl. Commissioner ( AR ) for the Respondent
ORDER
Per Bench
The appellants are inter alia manufacturers of 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.
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terest thereon and penalties were also imposed under sections 76, 77 and 78 of the Finance Act. Hence this appeal.
3. When the matter came up for hearing, ld. counsel Shri Vishal Agarwal and Shri Akshit Malhotra appeared and argued on behalf of the appellants. Ld. counsel explained that wherever the appellant was called upon to furnish Corporate Guarantee, they requested their holding company Viz. Vedanta Resources P/c. London to furnish the same. For this, the holding company used to charge the appellant a fee called Guarantee Commission. Similarly, in respect of its associates and subsidiary companies such as Indian Foils Ltd. Madras Aluminium Co. Ltd. etc. wherever 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 o
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Other Financial Services‟, the levy of service tax cannot be attracted. That adjudicating authority has wrongly interpreted the definition to conclude that since appellant is a company would fit into the definition and as per Section 65(105)(zm) an institution need not be Banking or Non-Banking Financial Institution to fit into this category and need only be a body corporate. That this is completely contrary to the clarification issued by Board in its Circulars.
3.3 The CBEC in their Circulars dated 9.7.2001 and 4.7.2006 has clarified that the expression “any body corporate‟ or “any other person‟ which is referred to in the definition of BOFS has to be read 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 t
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se laws:-
a. Sree Durga Distributors Vs. State of Karnataka – (2007) 4 SCC 476
b. State of Bombay Vs. Bombay Education Society – AIR 1954 SC 561
Providing “corporate guarantee‟ is not one of the itemized service in the definition. Hence, the same cannot be taxed under the head BOFS. Even though the adjudicating authority has admitted that bank guarantee is a guarantee by a bank and a corporate guarantee is a guarantee by the corporate, however, the said authority has still confirmed the demand holding that both guarantees are the same.
3.5 The Tribunal in the case of Banswara Syntex Vs. Commissioner of Central Excise – 2010 (18) STR 68 had clearly laid down that the expression “body 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
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l as for the tax under forward charge, the said situation is clearly revenue neutral one. In reverse charge the tax paid by the appellant would be available for credit to the appellant. The tax paid under forward charge, it is submitted that as a group, the tax paid by appellant would be eligible as credit to the associates / subsidiaries. That being revenue neutral, the invocation of extended period is unsustainable.
3.8 The issue in dispute is clearly one of interpretation and it cannot be concluded that there was willful suppression or fraud on the part of the appellant. Further, when the issue involved is an interpretational one, extended period of limitation cannot be invoked.
3.9 Moreover, 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
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sued by a bank it is bank guarantee and when issued by a corporate it is corporate guarantee. The functions of both such guarantees are one and the same and therefore providing a corporate guarantee would come within the ambit of providing bank guarantee. The activity of providing a corporate guarantee by the appellant thus falls within the definition of BOFS.
4.1 Countering the argument of the ld. counsel on the reliance placed on the decisions, he submitted that the said decisions do not apply to the facts of the case for the reason that it is not necessary that a corporate body should be a banking company in order to fall within the definition of BOFS. In the present case, undisputedly the appellant 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 c
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that service tax will be applicable even to a body corporate.
4.5 He further relied on the decision of the Tribunal in the case of Eicher Motors Ltd. Vs. Commissioner of Central Excise, indore – 2016 (41) STR 721 (Tri. Del.) wherein it was inter alia held that with effect from 16.8.2002, the body corporate would also be liable to service tax for the activity of financial leasing under service tax category of BOFS.
5. Heard both sides.
6. The dispute that comes up for resolution is 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.
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
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t, pension fund management, custodial, depository and trust services ,
(vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; (vii) provision and transfer of information and data processing; and
(viii) banker to an issue services; and
(ix) other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank 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);
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nsive definition and not an inclusive definition.
iii. In Section 65(12)(a), the only persons who have been made liable to service tax under this category are banking company, financial institution (including a non-banking financial company) any other body corporate or a commercial concern.
iv. Further, after listing out the category of persons who would be exigible to tax under the category, the services provided by such persons which alone would be exigible to such taxes have been comprehensively and specifically listed out with the use of the words “namely‟.
6.4 Analysis of the second limb of argument would be sufficient to resolve the issue whether the activity of issuing Corporate Guarantee is taxable 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 t
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In Webster's Encyclopedic Unabridged Dictionary of the English Language, the word 'namely' has been stated as 'that is to say, explicitly, specifically to wit; on item of legislation, namely, certain bail.” In Chambers 21st Century Dictionary the word 'namely' has been stated as “used to introduce an expansion or explanation of what has just been mentioned”. In World Book Dictionary, the word 'namely' has been stated as 'that is to say to wit'. Therefore, the word 'namely', ordinarily imports of what is comprised in the preceding clause; and it ordinarily serves of equating what follows with the clause described before. This Court in State 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
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ces dated 22.4.2010 and 19.9.2011.
6.6 From the facts on record, it is evident that the appellants did not provide “bank guarantee‟ to their associate companies in India, neither did they receive any “bank guarantee‟ from parent company abroad. What they provided / received was only a corporate guarantee to /from their associate companies for which exercise they had received / paid guarantee commission. The department has taken the view that Corporate Guarantee and Bank Guarantee are one and the same. We are however unable to agree to this proposition that a corporate guarantee is nothing but bank guarantee by another name. A bank guarantee is given by a bank on behalf of the customer 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 the
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rantee commission had been received / paid from / to their associate / subsidiary companies for providing / receiving corporate guarantee which in turn was utilized to secure external commercial loans.
6.8 In the event, we do not find much 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.
6.9 Ld. AR has been at pains to argue that the taxable entry under section 65(105)(zm) ibid also brings within 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
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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.
8. The ld. counsel has argued on the grounds of revenue neutrality as well as limitation. The show cause notice dated 22.4.2010, 22.10.2010 and 19.9.2011 have been issued for the periods 2004 – 2011. The appellant has furnished the documents with regard to the audits conducted. The audit report conducted from 18.6.2007 to 29.6.2007 has not raised any objection of non-payment of service tax for providing corporate guarantee. Prior to this an audit was conducted from 19.9.2006 to 21.9.2006 and the report does not show any such objection. All these would go to show that the appellant has not suppressed any facts with intention to evade payment of tax. On such score, the show cause notice issued invoking extended period cannot sustain. The appellant succeeds on limitation also.
9. From the foregoing, we hold that the impugned order requires to be set a
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