2017 (9) TMI 228 - AT - Service Tax

Tribunal upholds service tax on non-compete agreement as consideration for business services

The Tribunal upheld the service tax demand on a non-compete agreement between M/s Jamna Auto Industries Ltd. and another company, deeming the agreement ... Business Support Services - non-compete agreement - Held that: - there cannot be any doubt that the appellant’s action and activity of ‘entering into non-compete agreement with JSSL’ is nothing but a service covered by ‘support service of business and commerce’ as defined under Section 65(104c) read with Section 65(105) of Finance Act, 1994 and therefore, the consideration received for the said services is accordingly taxable - appeal dismissed - decided against appellant. Issues:Service tax demand on non-compete agreementAnalysis:The appellant, M/s Jamna Auto Industries Ltd. (JAIL), appealed against the confirmation of a service tax demand of Rs. 51,50,000/- along with interest and penalty related to a non-compete agreement entered into with another company. The agreement prohibited the appellant from setting up a factory or selling specific goods to a particular entity. The department argued that this agreement constituted 'support services of business or commerce' under relevant sections of the Finance Act, 1994, making it taxable. The Tribunal considered the definitions provided in the Act for 'support services of business or commerce' and 'taxable service' in this context. It concluded that the non-compete agreement, which provided support to the business activities of the other party, fell under the definition of 'support service of business or commerce' and was thus taxable. The agreement fee of Rs. 5 crores received by the appellant was deemed consideration for the support service provided. The Tribunal noted that both parties were engaged in similar business activities, with the other party being a wholly-owned subsidiary of the appellant. Therefore, the Tribunal upheld the service tax demand, dismissing the appeal and disposing of cross-objections accordingly. The judgment was pronounced on 31.7.2017.