‘Service Tax cannot be levied when there is no flow of Consideration’: CESTAT sets aside Rs. 31.5 lakhs demand on Corporate Guarantee

The Delhi bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand of Rs 3.15 lakhs on a corporate guarantee, ruling that service tax cannot be levied when there is no flow of consideration. The case involved a company that had provided a corporate guarantee for its subsidiary without charging any commission or fee. The revenue department had contended that providing a corporate guarantee is a taxable service and had demanded service tax on a notional value. However, the CESTAT observed that the levy of service tax is contingent upon the presence of a consideration for the service provided. Since no consideration was exchanged between the parent company and its subsidiary for the guarantee, the tribunal concluded that no service tax was payable. This ruling provides important clarity on the taxability of corporate guarantees provided without consideration within group companies.