Company's internal service transactions between units not taxable as "service to self" under service tax law

Jharkhand HC dismissed Revenue's appeal regarding service tax recovery from a company's internal service transactions. The Court held that services between two units of the same company constitute "service to self" and are not taxable under service tax law. Despite separate registrations under Service Tax Rules 1994, both units remain part of the same legal entity under Companies Act. The Court emphasized that a company incorporated under Companies Act 1956 is a single legal person and cannot reconstitute itself into separate entities. The Tribunal's contrary finding was deemed erroneous and perverse, violating established judicial precedent requiring larger bench referral for conflicting decisions.

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Issues Involved:

1. Whether services rendered by one unit/division of a company to another unit/division of the same company are "service" under the Finance Act, 1994 and exigible to service tax thereunder.
2. Whether the extended period of limitation can be invoked in this case.
3. Whether the impugned order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) is a non-speaking and non-reasoned order, violating the principles of natural justice.

Issue-Wise Detailed Analysis:

1. Services Rendered by One Unit/Division to Another Unit/Division of the Same Company:

The primary contention was whether the services rendered by Tata Growth Shop (TGS), a unit of Tata Steel Ltd. (TSL), to another unit of TSL, constitute a "service" under the Finance Act, 1994, and thus are liable to service tax. The court held that TGS and TSL are part of the same legal entity. It is a settled principle that a company incorporated under the Companies Act, 1956, is a single person/entity in the eye of law and cannot reconstitute itself into several legal entities. Divisions or branches of a company cannot have an identity distinct from the company itself. Therefore, services rendered by one unit of TSL to another do not constitute a "service" provided by one person to another under Section 65(105) of the Act read with Section 66 thereof. The court found the Tribunal's distinction between TGS and TSL based on separate registrations as misconceived and irrelevant for determining the taxability of services between units of the same company.

2. Extended Period of Limitation:

The Revenue argued that the extended period of limitation should be invoked because TSL allegedly suppressed facts with the intent to evade service tax. However, the court noted that the Tribunal found no specific allegations of suppression, fraud, or intent to evade tax. The court emphasized that the Revenue's discovery of facts during the course of record checking, rather than from an independent source, does not justify invoking the extended period of limitation. The court concluded that the demand for service tax could only be sustained for the normal period of limitation, not the extended period.

3. Nature of the Tribunal's Order:

The Assessee contended that the Tribunal's order was non-speaking and non-reasoned, thus violating principles of natural justice. The court agreed, noting that the Tribunal failed to adequately address specific contentions and documentary evidence presented by the Assessee. The court found the Tribunal's conclusions to be patently erroneous and perverse, particularly the finding that TGS and TSL are different legal entities based on separate registrations. The court reiterated that separate registrations are procedural requirements and do not alter the legal identity of the company or its units.

Conclusion:

The court ruled in favor of the Assessee, holding that services rendered by one unit of TSL to another do not constitute taxable services under the Act. The court also rejected the Revenue's appeal regarding the extended period of limitation, finding no evidence of suppression or intent to evade tax. Consequently, the impugned order of the CESTAT was set aside as contrary to law and unsustainable. The Assessee's appeal was allowed, and the Revenue's appeal was dismissed.

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