Case Law Details
DLF Home Developers Limited Vs Commissioner of Central Excise & Service Tax (CESTAT Chandigarh)
Introduction: In a significant decision, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Chandigarh has ruled that no service tax is payable on bank guarantees provided by a company to its group of companies. The case, DLF Home Developers Limited vs. Commissioner of Central Excise & Service Tax, involves multiple service tax-related issues, including banking and financial services. This article delves into the details of the case and the CESTAT’s decision.
Background of the Case: DLF Home Developers Limited, the appellant in this case, was providing various services, including Business Auxiliary Service, Business Support Service, Construction of Complex Service, and Renting of Immovable Property Service. The issue at hand pertains to service tax demands raised during a departmental audit.
The audit revealed that the appellant had not paid service tax on consideration received for golf course activities, Construction of Complex Service, Renting of Immovable Property Service, Preferential Location Service, and Banking and Other Financial Services. Show-cause notices were subsequently issued by the department, leading to the adjudication of the matter.
The Appeals: The appellant challenged the demands raised in the show-cause notices before the CESTAT Chandigarh. The issues before the tribunal included demands related to Banking and Other Financial Services, Preferential Location Service, and penalties imposed for non-payment of service tax.
Banking and Other Financial Services: The department sought to tax the appellant’s act of providing bank guarantees to its group companies under the category of “Banking and Other Financial Services.” The basis for this was the presumption that the appellant had availed loans at a lower interest rate and collected more interest on the money invested in bank guarantees.
The appellant vehemently opposed this claim, stating that they had not received any consideration for providing bank guarantees. The department’s argument relied on assumptions without concrete evidence, and the appellant had not charged any fees or interest on the bank guarantees provided to group companies.
Notably, the CESTAT cited a previous decision in the appellant’s favor involving a group company’s case. In that case, the tribunal had concluded that the appellant was not liable to pay service tax on corporate guarantees provided to banks and financial institutions on behalf of their holding company or associate enterprises. This decision was instrumental in the current case.
Preferential Location Service and Penalties: As for the Preferential Location Service, the department imposed penalties, claiming that the appellant had not disclosed material facts and had not paid the applicable service tax. The appellant countered this by highlighting that they had paid the due service tax before the issuance of the show-cause notice. The tribunal considered Section 73(3) of the Finance Act, which prohibits the issuance of show-cause notices when service tax is paid by the assessee.
CESTAT’s Decision:
Banking and Other Financial Services:
- The CESTAT Chandigarh rejected the department’s attempt to tax the appellant’s provision of bank guarantees to group companies under the category of “Banking and Other Financial Services.”
- The tribunal emphasized that no consideration was received by the appellant for providing bank guarantees, effectively ruling out the applicability of service tax.
- The CESTAT referred to a previous case decision where a similar matter had been decided in favor of the appellant.
Preferential Location Service and Penalties:
- The CESTAT upheld the appellant’s stance regarding the Preferential Location Service, concluding that they had paid the service tax before the issuance of the show-cause notice.
- The tribunal reiterated the importance of establishing a positive act on the part of the assessee with the intent to evade payment of tax to invoke penalties.
- In this case, the extended period for issuing show-cause notices was not warranted, and thus, no penalties could be imposed.
Conclusion: The CESTAT Chandigarh’s decision in the case of DLF Home Developers Limited vs. Commissioner of Central Excise & Service Tax clarifies that providing bank guarantees to group companies does not attract service tax when no consideration is involved. This ruling underlines the significance of demonstrating the presence of consideration for a service to be taxable.
Furthermore, the decision emphasizes that mere non-registration, non-payment of service tax, and non-filing of returns are insufficient reasons to allege suppression or fraud by the assessee. To establish suppression, a positive act with the intent to evade tax must be proven. This case serves as a precedent and provides clarity on the taxation of bank guarantees when no consideration is involved, offering important insights for similar cases in the future.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The appellants, M/s DLF Home Developers, are providing Business Auxiliary Service, Business Support Service, Construction of Complex Service and Renting of Immovable Property Service and have registered themselves for the same. During the conduct of an audit by the officers, it was found that the appellants have received consideration on account of golf course activities which was shown as income but no service tax was paid on the same; it was also observed that the appellants have not appropriated service tax on Construction of Complex Service, Renting of Immovable Property Service, Preferential Location Service and Banking and Other Financial Services. Two show-cause notices dated 20.10.2015 and 18.04.2016 were issued to the appellants demanding service tax under different Heads; the show-cause notices were adjudicated vide OIO dated 09.06.2017 wherein certain demands were confirmed and certain demands were dropped. Hence, this appeal.
2. Shri Anubhav Goel, learned Counsel for the appellants submits elaborate written submissions and copies of relied upon cases. He submits that learned Commissioner has dropped the demand on Renting of Immovable Property Service, Construction of Residential Complex Service; however, learned Commissioner has confirmed tax and penalty on Banking and Other Financial Services and has confirmed penalty on Preferential Location Services on which the applicable tax was paid before issuance of show-cause notice. Regarding imposition of penalty on the service tax payable on Preferential Location Services, learned Counsel submits that the appellants have paid the tax of Rs.2,67,45,149/- before the issuance of show-cause notice and therefore, in terms of Section 73, show-cause notice ought not to have been issued.
3. Regarding Banking and other Financial Services, he submits that the appellants have given bank guarantees on behalf of their group companies and the Department intends to tax the same under Banking and Other Financial Services. He submits that, however, there is no consideration flowing to the appellant; Department presumed without any evidence that the appellants have availed loans at a lower interest and collected more interest on the money invested in bank guarantees; this is factually incorrect; the appellants have not charged any fee or interest on the bank guarantees provided by them to their group companies. This Bench of the Tribunal in their own case has decided the issue in their favour.
4. Shri Nikhil Kumar Singh, assisted by Shri Yashpal Singh, learned Authorized Representative for the Revenue, reiterates the findings of the OIO; he submits that penalty in respect of Preferential Location Services has been correctly imposed as the appellants have not disclosed material facts to the Department and have not paid the applicable service tax.
5. Heard both sides and perused the records of the case. There are two issues in the impugned case: (i) whether the Revenue was correct in issuing show-cause notice and imposing penalty in respect of Preferential Location Services wherein the appellants have paid the applicable service tax before the issuance of show-cause notice and (ii) whether the appellants are required to pay service tax under the Head “Banking and Other Financial Services” on their act of providing bank guarantees to their group companies. As far as the issue no. (i) is concerned, we find that Section 73 (3) provides that the Central Excise Officer shall not serve any notice under sub-Section 1 of Section 73 where the assessee pays the service tax. The only exception to such non-issuance of show-cause notice is provided under sub-Section 4. Sub-Section 4 is attracted when the elements like fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of this Chapter or of the Rules made there under with intent to evade payment of service tax. We find that Revenue has not established any such ingredients in the impugned case except for stating that the appellants have suppressed the material facts. We find that Courts and Tribunals have been consistently holding that mere non-obtaining registration, nonpayment of service tax and non-filing of ST-3 Returns cannot be a reason to allege suppression etc. and that a positive act on the part of the assessee with intent to evade payment of tax has to be established. Looking into the facts and circumstances of the case, we find that extended period is not invocable and hence, penalty cannot be imposed on the service tax which stands paid before the issuance of show-cause notice.
6. Coming to the second issue, we find that the Department has not adduced any evidence to the effect that the appellants have received any consideration in providing bank guarantees. This Bench in the case of appellant’s group company have decided the issue vide Final Order No.60890/2019 dated 21.10.2019 in their favour. The Bench observed that:
4. It is an admitted fact that the appellant has not received any consideration from either from the financial institutions or from their associates for providing corporate guarantee, in that circumstances, no service tax is payable by the appellant. Moreover, the demand raised in the show cause notices are on the basis of assumption and presumption presuming that their associates have received the loan facilities from the financial institution at lower rate, therefore, the differential amount of interest is consideration, but there is no such evidence produced by the revenue on that behalf. In that circumstances, we hold that the appellant is not liable to pay any service tax on corporate guarantee provided by the appellant to various banks/financial institutions on behalf of their holding company/associate enterprises for their loan or over draft facility under Banking and Financial Institutions after or before 01.07.2012.
5. In view of this, we set-aside the impugned order qua demand of service tax on corporate guarantee provided by the appellant. We further take note of the fact that for the charges leviable on account of prime location charges etc., the appellant has already paid service tax along with interest before issuance of the show cause notice. Therefore, we hold that in terms of Section 73(3) of the act, the proceedings were not required to be initiated against the appellant, therefore, penalty imposed on the appellant is set 4 ST/61204/2018 aside. Accordingly, the impugned order is set aside, the appeal is allowed with consequential relief.
7. The Co-ordinate Bench, Mumbai in the case of Commissioner of CGST Vs Edelweiss Financial Services Ltd. (Final Order No.A/85986/2022 dated 16.02.2022) held that:
8. The criticality of “consideration” for determination of service, as defined in section 65B(44) of Finance Act, 1994, for the disputed period after introduction of ‘negative list’ regime of taxation has been rightly construed by the adjudicating authority. Any activity must, for the purpose of taxability under Finance Act, 1994, not only, in relation to ST/87134/2018 to another, reveal a ‘provider’, but also the flow of ‘consideration’ for rendering of the service. In the absence of any of these two elements, taxability under section 66B of Finance Act, 1994 will not arise. It is clear that there is no consideration insofar as “corporate guarantee” issued by respondent on behalf of their subsidiary companies is concerned.
8. In view of the above, we find that the appeal survives on both issues. As a result, the appeal is allowed.
(Pronounced on 20/10/2023)
