Inter-unit testing services within the same company were held not taxable, and related penalties were set aside.

Service tax was held not leviable on testing services rendered by one unit of the same corporate entity to another unit, because inter-unit activity within a single company is not treated as a service to a separate legal person. The earlier view treating the units as distinct entities was rejected in favour of later Tribunal decisions. As no taxable service arose on self-supply, the penalties also could not be sustained and were set aside, leaving the assessee without tax liability on the inter-unit testing arrangement.

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Issues: Whether service tax was leviable on testing services rendered by one unit of the assessee to another unit of the same corporate entity, and whether the penalties imposed could be sustained.

Analysis: The units belonged to the same corporate entity. In service tax matters, different units of the same company are not to be treated as separate legal entities for the purpose of taxability, and a service rendered to oneself does not attract service tax. The earlier view treating the units as separate legal entities was not accepted in the light of the later Tribunal decisions relied upon.

Conclusion: Service tax was not leviable on the inter-unit testing services, and the penalties could not survive. The appeal was therefore allowed in favour of the assessee.

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