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Service Tax, Delhi – V – 2019 (28) GSTL
478 (Tri. - Chan.) whereby the demand
created by the adjudicating authority on
providing Corporate Guarantee to
Group companies under the category of
'Banking and Other Financial Services'
was dropped. Recently, the Hon'ble
Supreme Court of India vide its
judgment dated 17.03.2023 in the case
of Commissioner of CGST And Central
performance guarantee given by it in favour of third
Excise Vs. M/s Edelweiss Financial Services Ltd. in party.
Civil Appeal Diary No. (s) – 5258 of 2023, upheld the
order of Custom, Excise & Service Tax Appellate Therefore, the same cannot be considered more
than 1% as against 2.5% considered in SCN. As per
Tribunal, whereby the appeal filed by the revenue
against the adjudication order dropping the demand Deptt. of Economic Affairs also guarantee fee is to be
determined on case to case basis which depends
proposed for providing Corporate Guarantee to
upon credit rating and other securities in the form of
Group Companies, was dismissed considering the
submissions made that in the present case the movable and immovables hence the value of alleged
supply of service i.e. guarantee commission should
assessee had not received any consideration while
be calculated based on sanction letter of the Bank
providing Corporate Guarantee to its group
companies. i.e. @1% only.

1.7) Even on merits, GST on reverse charge Therefore, the show cause notices being issued
proposing to pay GST on notional value of personal
mechanism on the alleged deemed service by the
guarantee given by the managing director as supply
managing director cannot be covered within the
meaning of “Consideration” u/s 2(31) of CGST Act of taxable service are invalid & void ab-initio.
02) Reg : Levy of interest u/s 50 of the Act :-
because neither any payment can be made for such
In the show cause notice, it is being proposed to levy
services by the company nor the director can
demand any such commission which is statutorily interest on delayed payment of GST Act u/s 50 of
GST Act though there was No effective delay in any
prohibited by RBI.
manner in payment of alleged tax. As per show
The GST Department is of the opinion that personal
cause notice the liability to pay GST is proposed
guarantee is given by a related person hence even if under Reverse Charge Mechanism (RCM) u/s 9(3) of
it is given without consideration it will be deemed
the Act which in turn is available to be adjusted
supply under Schedule-I hence taxable under GST against output tax liability of the company for the
Act based on (a) Notification no. 10/2017-intigrated
same month or in the next month. Presuming but
tax (rate) dt. 28.06.2017 and (b) OM issued by
not admitting that any supply of service is involved,
Department of Economic Affairs under F.No. 12(15)- the amount deposited on quarterly basis was
B(SD)/2005 dt. 22.09.2010 for the purpose of
available against output tax liability or same quarter
ascertaining assessable value of corporate
basis. Thus, it is “Revenue Neutral” having no
guarantee (1% per annum in case of public sector additional tax liability on the company nor any
and 2.5% per annum in case of other sectors). In
additional revenue to the Ex-chequer.
show cause notices, the value of service is being
That being so, there was no delay in payment of any
calculated @2.5% of the guarantee amount on
which GST is proposed @ 18%. In normal tax which is a notional tax liability under deeming
fiction of law. In effect, the company did not delay
circumstances, the guarantee commission is being
any payment of tax hence proposed levy of interest
charged by the banks @ 1% p.a. against any
u/s 50 of the Act is unwarranted. There was no

74 Order is order only when it is speaking one.