Fact: 1. The assessee, a major exporter of rice, in order to obtain loan from various Indian banks obtained corporate guarantee in favour of banks in India from its parent company situated in Singapore and in lieu of the said guarantee paid commission amounting to 1 per cent of the value of such corporate guarantee to the parent company at Singapore. The Adjudicating Authority held that the corporate guarantee commission paid by the assessee to the parent company was liable for service tax under the category of ‘business auxiliary service’.
2.The assessee, a major exporter of rice, had engaged various commission agents in foreign countries for procurement of export orders and in turn paid commission to them. The Adjudicating Authority held that the agency commission paid by the assessee to the foreign commission agents was liable for service tax under the category of ‘business auxiliary service’.
1. Whether corporate guarantee commission paid by assessee to parent company was chargeable to service under category of ‘business auxiliary service’
2. Whether commission paid to foreign commission agents was exempted from service tax in terms of Notification No. 13/2003-ST, dated 20-6-2003.
Held: The Hon’ble CESTAT of New Delhi vide Final Order No. 52650-52651 dated July 31, 2018 stated that definition of ‘business auxiliary service’ is very wide and it covers all the activities which promotes business of clients. The services detailed under clause (iv) of section 65(19) made taxable from 10-9-2004.
1. A corporate guarantee is used when a corporation agrees to be held responsible for completing the duties and obligations of debtor to a lender, in case the debtor fails to comply with the terms of the debtor-lender contract. Whereas a bank guarantee is a promise from a bank that the liability of the debtor will be met in the event the debtor fails to favour his contractual obligations. Therefore, the nature of corporate guarantee as well as of bank guarantee is one and the same, i.e., for facilitation of the lending facilities. The parent company of the assessee has executed corporate bank guarantee in favour of banks in India for facilitation of lending of funds to the assessee and in lieu of the said guarantee the assessee paid 1 per cent of value of guarantee as commission to its parent company at Singapore by way of foreign exchange remittance and the parent company provided debit notes on quarterly basis. The copies of the said debit notes clearly indicate the transactions with regard to lending facilities in India. Hence the corporate guarantee commission paid by the assessee to its parent company was chargeable to service tax under the category of ‘business auxiliary service’. Merely because the name of the guarantee has been changed from ‘Bank’ to ‘Corporate’ it cannot be said that it would not fall under ‘business auxiliary service’ as defined under section 65.
2. The agency commission has been paid by the assessee to foreign commission agents towards procurement of export orders for export of rice. The demand for service tax has been raised against the assessee on reverse charge basis under the ‘business auxiliary service’. The contention of the assessee is that it will be entitled to the benefit of the Notification No. 13/2003-ST, dated 20-6-2003 (as amended). This notification exempts service tax payable on commission agent services in relation to agricultural produce. The lower authority has not extended the benefit while taking the view that the export of rice is not covered under the said notification. But in the case of Kohinoor Foods Ltd. v. CCE [Final order No. 51954/2017, dated 16-2-2017] the Tribunal has taken the view that commission paid for export of rice to commission agents will be entitled to benefit of the Notification, particularly in view of the Circular dated 26-5-2011 issue by the Board. Commission paid to foreign agent was exempted from service.
Citation:  96 taxmann.com 549 (New Delhi – CESTAT)