The decision was made in the case of the Commissioner of CGST and Central Excise versus Edelweiss Financial Services, and is expected to resolve past cases related to service tax on corporate guarantees, tax experts said.
“No effort was made on behalf of the revenue to assail the…finding or to demonstrate that issuance of corporate guarantees to group companies without consideration would be a taxable service,” the top court observed while upholding a ruling by the principal commissioner of goods and services tax (GST). “In these circumstances, in view of such conclusive findings in both forums, we see no reason to admit this case,” the court said.
However, under the GST regime, even if no consideration is involved in a related party transaction, a ‘deemed consideration’ applies, and companies are required to pay tax, experts said.
“This order by the Supreme Court is with respect to the dispute under the service tax period where there was no deemed levy of tax in the absence of consideration even for services rendered to related entities,” said Abhishek Jain, partner, indirect tax, at KPMG in India. “However, taxpayers would need to evaluate the implications of GST on corporate guarantees, since under GST, transactions with related parties would qualify as supply even if no consideration is involved.”
The revenue department had issued a show-cause notice to Edelweiss Financial Services for failing to discharge tax liabilities related to providing corporate guarantees to its subsidiaries located within and outside India.
The parent company had not charged any consideration for providing corporate guarantees to its subsidiaries.
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