The Chandigarh Customs Excise and Service Tax Appellate Tribunal (CESTAT) clarified that the act of providing corporate guarantees for subsidiary units for the grant of a loan from a financial institution without any consideration is not chargeable to service tax.
The Division Bench, comprising S S Garg (Judicial Member) and P Anjani Kumar (Technical Member), reiterated that there is neither a service nor any consideration involved in cases where a corporate guarantee is provided by the associated enterprises to the banks for working capital-related loans required by the subsidiaries.
Thus, the Bench asserted that no Service Tax under the category of banking and other financial services can be demanded on the Corporate Guarantee provided by Associated Enterprise. Reference was made to the decision in the case of Huawei Telecommunication India Co Pvt Ltd vs. CCE & ST, Rohtak/Gurgaon-I [2025 (5) TMI 155- CESTAT Chandigarh].
Briefly, the audit in the case of the appellant showed that it had issued corporate guarantees to Kotak Mahindra Bank and HDFC Bank on behalf of its associated companies, Enkay HWS India Pvt Ltd and Enkay Brand Distribution Pvt Ltd, for loan/overdraft facilities. The Department alleged that this activity fell under “Banking and Other Financial Services” and issued SCN demanding Rs. 3.31 lacs with interest and penalty, which was confirmed by the Assistant Commissioner.
The appellant challenged the demand, contending that it had only provided a Corporate Guarantee with no consideration, whereas the service tax is leviable only on the value of the service.
Case Relied On:
Principal Commissioner of Central Tax, New Delhi vs. M/s Sindhu Trade Linkers [2023 (11) TMI 890 – CESTAT New Delhi]
Appearances:
B.L. Yadav, for the Appellant / Taxpayer
Kanish Saini, for the Respondent/ Revenue
