In Civil Appeal/2023 @ Diary No(s). 5258/2023 of Commissioner of CGST and Central Excise vs. M/s Edelweiss Financial Services Ltd., the Supreme Court of India had to deal with the moot question as to whether the Corporate Guarantee has passed the litmus test of Consideration or otherwise under Finance Act,1994.
Section 65(4) of the Finance Act, 1994, narrows down the definition of service only where it relates to such service which is rendered for valuable consideration
Valuation is subject to consideration under Section 67(1) of the Finance Act, 1994.
The quick take would be that;
a. Tax is leviable on Assessable value at the first place.
b. Consideration is the sine qua non to determine the Valuation for the purpose of taxability of a service.
c. Taxability event gets triggered with the onset of consideration and
d. Where Consideration itself is not identifiable in any manner, the question of levy of tax on any assessable value is out of question.
Conclusion of Supreme Court
The Court while not admitting the Appeal held that
“No effort was made on behalf of the Revenue to assail the above finding or to demonstrate that issuance of corporate guarantee to group companies without consideration would be a taxable service.”
No service tax is payable on Corporate Guarantee where no consideration has been received.
The saga has just started in GST era too and a long way has to be travelled, but the outcome is known to all.