TaxTMI 
TaxTMI 
2024 (6) TMI 43
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....r trade name 'Ola' for transfer of personal holding of the shares to M/s. ANI Technologies Pvt. Ltd. on 02.03.2015. The very purpose of the agreement is for the sale of shares of 'TFS' by shareholders of M/s. SILP. Alleging evasion of service tax, proceedings were initiated against the Appellants on the ground that Appellants were required under the share purchase agreement not to compete with M/s ANI Technologies Pvt. Ltd. which would amount to rendering taxable service. In response to the allegation, Appellants submitted that the amount received by them is towards the sale of equity share of M/s. SILP and no consideration is received towards the Non-compete and Non-solicit part of the agreement. In the absence of any consideration, there is no service tax liability. Moreover, it is transfer of an ongoing concern and it is exempted from the service tax as per Notification No. 25/2012-Service Tax dated 20.06.2012. However, a SCN was issued on 07.09.2018 proposing demand of service tax along with applicable interest and penalty in respect of Non-compete and Non-solicit agreement. The Appellants submitted detailed submissions, however the Adjudicating authority held that the buyout o....
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....nable. Learned Counsel for the Appellant further submitted that there is no consideration attributed for the discharge of obligation and due to that reason also, no service tax can be levied. The learned Counsel further submits that from the definition of Section 65(B)(44) of the Act, the ingredients for service must include any activity, for a consideration and it should have been carried out by one person for another. Without any specific consideration, no demand can be made. Learned Counsel also drew our attention to the definition of Declared Service. Section 65B (22) of the Act, is reproduced herein below: "declared service" means any activity carried out by a person for another for consideration and declared as such under Section 66E". "Section 66E. Declared Services- The following shall constitute declared services, namely:- (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. 5. Learned Counsel also drew our attention to clause 2 of the Non-compete and Non-solicit agreement, which were considered as service by Adjudication authority to conclude the agreement under declared service. "The Grantors hereby ackn....
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....ounsel relied on the decision of Hon'ble High Court of Mumbai in the matter of Assistant Commissioner of Income Tax Vs. Asea Brown Boveri Ltd., reported in 2007 (110) TTJ (Mum) 502 and submits that there are no such separate services intended to be received and no consideration assigned for the indemnity clause as alleged by the Respondent to demand service tax. 9. Learned Counsel further submits that determination of dominant character of an agreement is essential to demand tax. Learned Counsel drew our attention to the judgment of Hon'ble Supreme Court in the matter of M/s Bharat Sanchar Nigam Ltd (2006 (2) STR 161 (SC)). "41. Gannon Dunkerley survived the 46th Constitutional Amendment in two respects. First with regard to the definition of 'sale' for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Art. 366(29A) operate. By introducing separate categories of 'deemed sales', the meaning of the word 'goods' was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery etc. would continue to be defined according to known lega....
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....cipient to the service provider and should accrue to the benefit of the latter." In the said decision, the Larger Bench made reference to the concept of "consideration", as was expounded in the decision pertaining to Australian GST Rules, wherein a categorical distinction was made between "conditions" to a contract and "consideration". It has been prescribed under the said GST Rules that certain "conditions" contained in the contract cannot be seen in the light of "consideration" for the contract and merely because the service recipient has to fulfil such conditions would not mean that this value would form part of the value of the taxable services that are provided. 23. The Hon'ble Supreme Court in Commissioner of Service Tax Vs. M/s. Bhayana Builders [2018 (2) TMI 1325 = 2018 (10) G.S.T.L. 118 (S.C.)], while deciding the appeal filed by the Department against the aforesaid decision of the Tribunal, also explained the scope of Section 67 of the Act, both before and after the amendment, in the following words : "The amount charged should be for "for such service provided", Section 67 clearly indicates that the gross amount charged by the service provider has to be for the ser....
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....yond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider "for such service" and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider." ---- ---- --- 27. What follows from the aforesaid decisions is that "consideration" must flow from the service recipient to the service provider and should accrue to the benefit of the service provider and that the amount charged has necessarily to be a consideration for the tax....
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.... 12. Learned Counsel also drew our attention to the communication made by the Appellant on 29.09.2016 to the investigating agency regarding Non-taxable/Non-compete agreement and submitted that the Appellants had entered into share purchase agreement for sale of shares. Different Schedules including Schedule for Non-compete is a part and parcel of the share purchase agreement. Moreover, Department has selectively proceeded against the Appellants only and no proceedings were initiated against other shareholders, who had entered into such sale and transfer of share of 'TFS'. As regards the issue related to tenability of non-compete clause, the Learned Counsel relied on the decision of Hon'ble High Court of Mumbai in the matter of Assistant Commissioner of Income Tax Vs. Asea Brown Boveri Ltd., reported in 2007 (110) TTJ (Mum) 502. Thus, there is no such separate services intended to be received and no consideration assigned for the indemnity clause as alleged by the Respondent to demand service tax. 13. Learned Counsel also drew our attention to the Income Tax returns filed by the Appellants and the assessment order issued by Deputy Commissioner of Income Tax assessing the income un....
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....ct. 14. Learned Authorised Representative (AR) for the Revenue drew our attention to the finding of the Adjudicating authority and submits that the Non-compete and Non-solicit condition contained in the agreement amount to Declared Services, since there is an obligation to refrain from an act or to tolerate an act from a situation or to do an act. Further submits that buy out of 'TFS' by 'Ola Cabs' was basically for eliminating the competition and expanding their space. Thus, the dominant character of the agreement has to be seen from this aspect. Learned AR also drew our attention to the Circular No. 178/10/2022 dated 03.08.2022 and submits that the key in such cases is to consider, whether the impugned payments constitute consideration for another independent contract envisaging tolerating an act or situation or refraining from doing any act or a situation or simply doing an act. 15. Learned AR also relied on the decision of the Tribunal in the mater of M/s Godrej Consumer Products (2014 (305) E.L.T 61) "6.4 The next issue for consideration is whether the non-compete fee of Rs. 34 Crore paid by PGG to GSL can be included in the assessable value of toilet soaps manufactured by....
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....AR submits that for breach of Non-compete or Non solicit agreement, liability is upto 100% of Rs. 138,23,83,668/- on the part of notice and for breach of clause of the condition of sale share, Notional liability is 20% of Rs. 138,23,83,668/-. Considering the same, Adjudication authority ought to have considered the consideration equivalent to Rs. 138,23,83,668/- and not to Rs.110,59,06,934/- being 80% of Rs.138,23,83,668/- received by the Appellant Shri. Aprameya Radhakrishna from M/s ANI Technologies as consideration for the service and to confirm demand terms of Section 67(1) with interest and penalty equal amount under Section 78 of the Finance Act, 1994. 18. Since the issue in the all the appeals are common, all the appeals are taken up together for hearing. 19. Heard both sides and perused the records. 20. The Adjudication authority in the impugned order categorically admits that "From the facts it is seen that M/s SILP entered into a Business Transfer Agreement (BTA) dated 02.03.2015 with Ola' for transfer of personal holding of the shares". The Adjudicating authority further observed that; as per the BTA, M/s SILP were to transfer all the specified employees (most of the ....