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If a service is rendered, but no consideration is received, service tax cannot be charged, according to the Customs, Excise and Service Tax Tribunal.
The Tribunal rejected the tax authorities’ contention that a notional value of what could have been the consideration, could be the basis of levying a service tax.
Pharmax Corporation provided various services and pays service tax on them. However, it had also provided corporate guarantee on behalf of its sister concerns, but not charged any commission or fee for that.
Revenue authorities argued that if the sister concerns had approached a bank, the bank would have charged them fees, which would be taxable in the hands of the banks. Such fees would have been taxable in the hands of the banks under the category of “Banking & Financial Services”. Therefore, even if Pharmax 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.
The Tribunal held that a service tax can be charged only when there is a service provider, a service recipient and a consideration for the service. The tax liability falls on the service provider. If a service is provided but no consideration is received, no service tax can be charged. The consideration shall be deemed Rs 0; as such, the tax liability shall also be Rs 0.
This issue has been settled in many decisions.
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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