By TIOL News Service

MUMBAI, NOV 12, 2014: THE applicant is issuing guarantees to various corporate entities and for which they are charging commission.

The Revenue wants the applicant to pay Service tax on this commission received under the category ‘Banking and other Financial Services'. SCNs came to be issued and the demands were confirmed for the period 2004-2005 to 2009-2010.

And so, the applicant is before the CESTAT and makes the primary submission that they are a Non-Banking Financial Institution issuing corporate guarantees to various corporate entities to secure their advance and for issuing such guarantees they are getting certain commissions from the corporate entities. It is the contention of the applicant that they are not providing any service under banking and other financial service as defined under Section 65 (12) of the Finance Act, 1994 as only guarantees issued by a bank is liable to service tax. It is further submitted that they are not holding banking licence and, therefore,are not required to pay service tax.

The AR submitted that the applicant is having loan advanced by banks and they are secured loan by the banks; therefore, whatever corporate guarantees issued by the applicant are indirectly covered by bank guarantee only; therefore, the applicant is required to pay service tax on the said transaction.

The Bench observed –

"6. It is no doubt that applicant is not a banking company and service tax is payable only on the issuance of the bank guarantee issued by the bank. Further, we have seen the impugned order wherein, in one case, the guarantee has been given by the bank; in that case service tax has been paid by the bank and credit of the said service tax has not been availed by the applicant. Further, we find that in the Guarantee the word "Bank" is mentioned wrongly instead of applicant itself. Admittedly, the guarantees issued by the applicant does not bear or does not have any party as a bank. In these circumstances, prima facie applicant has made out a case for complete waiver of pre-deposit…."

In fine, the requirement of pre-deposit of adjudged dues was waived and the recovery was stayed.

Quick fix : Section 65(12)(a)(ix) read –

(12) "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 :-

…

(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;

(See 2014-TIOL-2245-CESTAT-MUM)