2022 (4) TMI 369 - AT - Service Tax

Refund of Service tax paid under protest - legal consultancy services received for winding up of business - applicability of Reverse Charge Mechanism - business entity or not - HELD THAT - The term business entity is defined under section 65B(17) to mean any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession. Here ordinarily means normally or in normal course. Therefore, it can be said that business entity is a person who ordinarily carries out activity for profit. However, if any person is not carrying out any activity for profit, then the person cannot be considered as business entity . Therefore, for applicability of this definition the appellant has to normally or in normal course, indulged in any activity which is profit motivated. Merely because the appellant is still registered under the Companies Act and has not get the said registration cancelled does not mean that they are carrying out business activity. It is nowhere the case of the Revenue that the appellant is indulged into any activity relating to its business after the year 2008. The learned Commissioner has specifically recorded in the impugned order that there is no dispute that the appellant have stopped their business activity and are in the process of winding up - The appellant cannot be saddled with any tax liability only on the basis of apprehension. It is the case of the appellant, which has not been denied anywhere by revenue, that they have discharged their employees also at the time of closure of business. Profit or motive for profit is a pre-condition for application of section 65B(17) ibid, which are not available from the facts of this case. Submission of learned Authorised Representative is that after so many years of winding up or/ closure of business the appellant are availing legal consultancy services which raises suspicion - HELD THAT - The same is also without any basis as no evidence has been placed on record by the department to substantiate it nor it is the case of the department anywhere in the show cause notice or before the authorities below. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Entitlement for refund claim of Service Tax paid under Reverse Charge Mechanism for legal consultancy services received during winding up of business.

Analysis:
1. Issue of Entitlement for Refund Claim: The appeal challenged the Order-in-Appeal rejecting the refund claim of Service Tax paid under Reverse Charge Mechanism for legal consultancy services received during the winding up of the business. The appellant claimed exemption under Notification No. 25/2012-ST dated 20.06.2012. The Adjudicating Authority and the Appellate Authority rejected the refund claims, stating that the appellant, being a 'business entity,' did not qualify for the exemption under the notification.

2. Appellant's Argument: The appellant argued that they received legal consultancy services for the closure of business activities, not for any ongoing business operations. They contended that since they had ceased business activities, they were not liable to pay Service Tax. The appellant emphasized that they were not engaged in any industry or commerce and did not intend to undertake any business. They cited legal precedents to support their claim that expenses incurred during winding up are not for furthering business but for closure.

3. Revenue's Position: The Revenue argued that the appellant, being a 'business entity' as per section 65B(17) of the Finance Act, was not eligible for the exemption. They highlighted that the appellant had not surrendered their registration under the Companies Act, implying the possibility of future business activities. The Revenue questioned why the appellant sought legal consultancy services years after winding up, suggesting continued business entity status.

4. Judgment: The Member (Judicial) analyzed the definition of 'business entity' under section 65B(17) and concluded that for the appellant to be considered as such, they must ordinarily carry out profit-motivated activities. The Member found no evidence of ongoing business activities or profit generation post the business closure in 2008. The apprehension that the appellant 'can' engage in business activities due to their registration under the Companies Act was deemed unfounded. The Member sided with the appellant, allowing the appeal and setting aside the impugned order.

5. Conclusion: The judgment favored the appellant, emphasizing the lack of profit motive or ongoing business activities post the closure in 2008. The Member dismissed the Revenue's apprehensions and lack of evidence supporting continued business activities. The decision highlighted the importance of profit motive for defining a 'business entity' and supported the appellant's claim for refund based on legal precedents and the specific circumstances of winding up activities.