2018 (1) TMI 1219 - AT - Service Tax

Liability of service tax - considerations received from RICO Industries Ltd. - time limitation - Held that - As the appellant contested the demand on limitation considering the intricacies of the provisions of the agreement and the appellant being not the sole service provider and the full details were captured in the balance sheet and other documents of the appellant, the case for extended period for demand for the consideration received pursuant to the value of participation agreement cannot be sustained. Liability of service tax - consideration received due to termination of the arrangement - Held that - no identifiable service can be attributed for such consideration. It is rather a termination of arrangement which itself the original authority held as a service. We note that by terminating the arrangement, the appellants are adversely put to certain business loss. The consideration has been paid for such loss. No identifiable service could be attributed for such payment during the material time - tax liability cannot sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Service tax liability of the appellant for considerations received from RICO Industries Ltd.
2. Taxability of income under Business Auxiliary Service.
3. Tax liability on consideration received due to termination of the arrangement.

Analysis:
1. The dispute in the appeals pertains to the service tax liability of the appellant concerning considerations received from RICO Industries Ltd. The appellant, along with Ford, USA and affiliates, was party to an agreement with RICO India for the promotion and sales of auto components. The appellant received Annual Incremental Purchase Payment as a percentage of incremental sales of RICO India's components. The tax liability was contested, arguing that the demand proceedings were based on the income particulars of the balance sheet, and the taxation of consideration received for terminating the agreement was challenged.

2. The appellant contended that the demand proceedings were improper due to limitations and that the termination payment received was not attributable to any service but rather a compensation for lost business opportunity. The appellant argued that the full consideration received should not be taxed as Business Auxiliary Service since they were part of an agreement where Ford, USA was the primary purchaser. The Tribunal noted that the demand based on balance sheet details without detailed allegations in the show cause notice was not sustainable for an extended period.

3. Regarding the tax liability on the consideration received due to termination of the arrangement, the Tribunal observed that no identifiable service could be attributed to such payment, as it was compensation for business loss. The termination payment was not for any specific service rendered but for the termination of the agreement. Consequently, the tax liability on this consideration was deemed unsustainable. The impugned order was set aside, and the appeals were allowed with any consequential relief.

This detailed analysis of the judgment highlights the key issues of service tax liability, taxability under Business Auxiliary Service, and tax liability on termination payments, providing a comprehensive understanding of the legal reasoning and conclusions reached by the Tribunal.