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The Commissioner, Central Excise & Service Tax vs. Pharmax Corporation Ltd - (Customs, Excise and Service Tax Appellate Tribunal) (27 Mar 2024)

If a service is rendered, but no consideration is received, service tax cannot be charged


Service Tax

In present matter, Pharmax Corporation Ltd. provides various services and pays service tax on them. During the course of audit and scrutiny of balance sheets, it was found that, the Respondent had provided corporate guarantee on behalf of its sister concerns to lenders but had not charged any commission or interest or fees for providing the guarantee.

It is the case of the Revenue that had the sister concerns approached other banks or institutions to obtain a guarantee of equivalent amount, the banks would have charged them certain fees. Such fees would have been taxable at the hands of the banks under the category of "Banking & Financial Services". Therefore, even though the Respondent had not received any consideration for the corporate guarantees which it had provided, a notional value equivalent to the amount which banks could have charged for similar services should be taken as a consideration and service tax should be charged on such notional amount.

There is no dispute that, no consideration was received by the respondent firm in these transactions. A show cause notice was issued to the Respondent invoking extended period of limitation and demanding service tax amounting to Rs. 81,13,864 along with interest and penalties. These proposals were confirmed by the Additional Commissioner in his order-in-original. Aggrieved, the Respondent had appealed.

Service tax can be charged on the consideration received for providing taxable services. In other words, there must be a service provider, a service recipient, a taxable service and a consideration. The service provider shall be liable to pay service tax on the consideration which it receives for providing a taxable service. Any amount which is received but which is not a consideration for providing a taxable service is not exigible to service tax. Similarly, if a service is rendered, but no consideration is received, no service tax can be charged. It is for the reason that if the consideration received is zero, any percentage will be zero itself. This issue has been settled in the series of decisions which have been correctly relied upon by the Commissioner (Appeals) while setting aside the order of the Additional Commissioner.

In the present case, there is not an iota of doubt that no consideration was received at all because the show cause notice itself says so. This being the position, the impugned order is correct and proper and calls for no interference. Appeal dismissed.


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