2017 (12) TMI 554 - AT - Service Tax

Appellant not liable for service tax on foreign services; liabilities not transferred to newly formed company.

M/s Aksh Technologies Ltd Versus CCE & ST Jaipur-I

The Tribunal held that the appellant was not liable to pay service tax for availing foreign services related to FCCB and GDR under banking and financial ... Services with reference to public offer of Foreign Currency Convertible Bonds (FCCB) and Global Depository Receipts (GDR)- Revenue held a view that appellants are liable to pay service tax for availing such services under the category of banking and offered financial services (BOFS) on reverse charge basis - Business Auxiliary Services - Held that: - There is nothing on record to show that the fund mobilization has exclusively been assigned to the appellants manufacturing facility. Further, the appellants categorically asserted that the repayment of loan consequent to FCCB/GDR till date is reflected in the balance-sheets of M/s Aksh Optifibre Limited. It is apparent that the liability continues to rest on M/s Aksh Optifibre Limited. In such factual contexts, we note the appellants cannot be fastened with any service tax liability for the reason that they have neither engaged the service provider nor the service tax liability arising on such arrangement can be held as inherited or transferred liability of the appellant - demand under Banking and other financial services withheld. Advertising services - internet telephone services - scope of SCN - Held that: - the original authority recorded that the service tax liability under advertising services and internet telecommunication services are confirmed even though it was not proposed under these categories of services in the show cause notice - Demand set aside. Appeal allowed - decided in favor of appellant. Issues:1. Liability for service tax on availing foreign services related to FCCB and GDR under banking and financial services.2. Liability for service tax under business auxiliary services, advertising services, and internet telephony services.3. Transfer of liabilities from one company to its subsidiary regarding service tax obligations.4. Applicability of service tax liability on a newly formed company for services availed by the parent company.Analysis:1. The appeal challenged the order of the Commissioner holding the appellant liable to pay service tax for availing foreign services related to FCCB and GDR under banking and financial services. The Revenue asserted that the appellant is liable for service tax under the reverse charge mechanism. The original authority confirmed the service tax liability and imposed penalties. The appellant contended that the liability should not fall upon them as the services were availed by the parent company before the formation of the appellant. The Tribunal noted that the liabilities were not transferred to the appellant, and the service tax liability cannot be inherited or transferred to the newly formed company. The demand for service tax under banking and financial services was set aside due to lack of legal justification.2. The second issue pertained to the confirmation of service tax liabilities under business auxiliary services, advertising services, and internet telephony services. The appellant argued that the original authority exceeded the scope of the proposal in the show cause notice by confirming liabilities under these services. The Tribunal observed that there was no proposal in the notice for liabilities under advertising and internet telecommunication services. As the original authority confirmed these liabilities without proper justification, the demands for these services were deemed unsustainable, and thus, set aside.3. The third issue revolved around the transfer of liabilities from the parent company to the appellant based on the resolution passed by the shareholders. The Revenue contended that since the manufacturing facility was transferred to the appellant, all liabilities, including tax liability, should fall upon them. However, the Tribunal found that there was no evidence to support the transfer of service tax liabilities to the appellant. The liabilities remained with the parent company, and the appellant could not be held responsible for them.4. Lastly, the Tribunal addressed the applicability of service tax liability on a newly formed company for services availed by the parent company. It was established that the appellant did not engage the service provider nor did they inherit the service tax liability arising from the transactions conducted by the parent company. The Tribunal emphasized that the liabilities could not be passed on to the appellant without proper legal justification. Consequently, the impugned order was deemed legally unsustainable, and the appeal was allowed.This detailed analysis of the judgment highlights the key issues addressed by the Tribunal and the legal reasoning behind setting aside the service tax liabilities imposed on the appellant.