2020 (12) TMI 1055 - AT - Service Tax

Tribunal rules show cause notice lacked jurisdiction, Appellant not liable for service tax.

M/s Jayaswal Neco Industries Ltd. Versus Commissioner of Customs, Central Excise and Service Tax, Raipur

The Tribunal held that the show cause notice was issued without jurisdiction, and the Appellant was not liable for the service tax obligations of Abhijeet ... Demand of Service Tax - Merger / Demerger of units - commission/ discounts paid to Abhijeet Ltd. and Corporate Ltd. - case of Revenue is that Abhijeet Ltd. and Corporate Ltd. had merged with the Appellant, it was the Appellant that was liable to pay service tax that would otherwise have been payable by Abhijeet Ltd. and Corporate Ltd. - HELD THAT:- It is apparent that only the Sponge Iron Plants and Power Plants of Abhijeet Ltd. and Corporate Ltd. merged with the Appellant and it was not a merger of Abhijeet Ltd. merged with the Appellant and it was not a merger of Abhijeet Ltd. and Corporate Ltd with the Appellant. The Demerged Companies, namely Abhijeet Ltd. and Corporate Ltd., continue to operate as going concerns. Thus, the liabilities of Abhijeet Ltd. and Corporate Ltd. could not have been fastened upon the Appellant. However, even if it is assumed that BAS was provided, then too only Abhijeet Ltd. and Corporate Ltd. were liable to pay service tax and not the Power Plants and Sponge Iron Plants, which constituted “the Demerged Undertakings” and which alone stood merged with the Appellant. Even in such a situation, it is doubtful whether the Appellant could be held to be liable for discharge service tax liability of the “Demerged Undertakings”. The show cause notice could have been issued to Abhijeet Ltd. and Corporate Ltd. and not to the appellant, which is a service recipient and not “a person” liable to pay service tax under section 68 of the Finance Act. Appeal allowed - decided in favor of appellant. Issues Involved:1. Jurisdiction of the show cause notice.2. Liability of the Appellant to pay service tax.3. Nature of the transaction between the Appellant and Abhijeet Ltd. and Corporate Ltd.4. Computation of demand and cum-tax benefit.5. Invocation of the extended period of limitation.Issue-wise Detailed Analysis:1. Jurisdiction of the Show Cause Notice:The Appellant argued that the show cause notice was issued without jurisdiction as the alleged taxable service was provided by Abhijeet Ltd. and Corporate Ltd., which are separate legal entities. The Appellant was merely a service receiver and not liable to pay the tax under section 73 of the Finance Act. The Commissioner, however, concluded that the liabilities of Abhijeet Ltd. and Corporate Ltd. had transferred to the Appellant due to the merger, making the Appellant liable for the service tax.2. Liability of the Appellant to Pay Service Tax:The Appellant contended that only the manufacturing plants of Abhijeet Ltd. and Corporate Ltd. merged with the Appellant, not the legal entities themselves. Thus, the Appellant should not be liable for the service tax dues of Abhijeet Ltd. and Corporate Ltd. The Tribunal agreed, noting that the merger involved only the plants, and the legal entities continued to exist independently. Therefore, the Appellant could not be held liable for the service tax obligations of Abhijeet Ltd. and Corporate Ltd.3. Nature of the Transaction:The Appellant argued that the transactions with Abhijeet Ltd. and Corporate Ltd. were on a principal-to-principal basis and not as commission agents, thus not falling under 'business auxiliary service' (BAS). The Commissioner, however, treated the discounts and incentives as commissions, making them taxable under BAS. The Tribunal found that even if BAS was provided, the liability to pay service tax would rest with Abhijeet Ltd. and Corporate Ltd., not the Appellant.4. Computation of Demand and Cum-tax Benefit:The Appellant claimed that the computation of demand was incorrect as the cum-tax benefit was not given. However, since the Tribunal set aside the entire demand on other grounds, it did not delve into the specifics of the computation.5. Invocation of the Extended Period of Limitation:The Appellant argued that the show cause notice, issued in April 2013 for the period from October 2007 to June 2009, failed to establish suppression or mis-declaration, making the extended period of limitation inapplicable. The Tribunal did not find it necessary to address this issue explicitly, as the primary grounds for setting aside the demand were based on jurisdiction and liability.Conclusion:The Tribunal concluded that the show cause notice was issued without jurisdiction and that the Appellant was not liable to pay the service tax dues of Abhijeet Ltd. and Corporate Ltd. Consequently, the demand for service tax, along with interest and penalties, was set aside, and the appeal was allowed. The Tribunal did not find it necessary to address the remaining contentions due to the primary grounds of decision.