In an important decision, the Hon’ble Supreme Court (‘SC’) in the case of Commissioner of CGST and CE v. Edelweiss Financial Services Limited, (Civil Appeal Diary No. 5258/2023), observed that Service Tax (‘ST’) cannot be levied on services in absence of consideration.
Facts of the case
The Taxpayer had provided corporate guarantees for its group companies without taking any consideration.
The Revenue contended that a corporate guarantee is akin to a bank guarantee and was also compensated by the improved credit rating, therefore, it involves a non-monetary consideration. Thus, the same is liable to ST.
The Taxpayer appealed the decision before Tribunal and contended that to qualify an activity as a ‘service’, one of the basic requirements is presence of consideration.
The Tribunal decided in favour of the Taxpayer and Revenue appealed the decision before SC.
SC Decision
The Court observed that the finding of the Tribunal is conclusive that ST cannot be levied on services not involving any consideration.
The Court also remarked that Revenue has failed to prove as to how ST is leviable in absence of a consideration.
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The decision will put a full stop to numerous cases pending on this matter under Service Tax regime. The case would also be relevant for cross-border corporate guarantees.
The decision, however, may do worse than good under Goods and Services Tax (‘GST’) regime since the Court has only dealt with the aspect of consideration and not whether ‘corporate guarantee’ is a service per se. Under GST, an activity by a related party is chargeable to tax even in the absence of consideration.
In our view, the Hon’ble SC decision may lead to more notices/demands from the Revenue under GST regime. It will be interesting to see as to how ‘taxable value’ is determined by the Revenue.
Source Yogesh Gaba
