2008 (1) TMI 254 - AT - Service Tax

Appellant firm, a Private Ltd. Co., a legal entity cannot be fastened with the liability of the partnership firm for the reason that one of the Directors of the limited company happens to be a partner of the dissolved partnership firm- Dept. submission that the Director of appellant firm was a partner in the partnership firm & the liability of the partnership firm devolved on the partners of the firm, is not acceptable - prima facie case against the demand & penalties stay granted

Summary

Issues:
1. Waiver of pre-deposit of service tax, interest, and penalties demanded.
2. Liability of a private limited company for service tax incurred by a dissolved partnership firm.

Analysis:
Issue 1: The appellant, a private limited company, sought waiver of pre-deposit of service tax, interest, and penalties demanded. The appellant argued that it should not be held liable for the service tax demanded as the service had been rendered by a dissolved partnership firm, and one of the partners of the partnership firm was now a Director in the appellant company. The appellant contended that as a legal entity distinct from the partnership firm, it should not be penalized for the actions of the partnership firm. The appellant cited a Tribunal decision to support their argument that different legal entities cannot be held liable for each other's obligations. The Tribunal found merit in the appellant's argument and ordered a complete waiver of pre-deposit and a stay of recovery of the dues until the final disposal of the appeal.

Issue 2: The Respondent argued that the liability of the partnership firm devolved on the partners of the firm, including a Director of the appellant company who was a partner in the dissolved partnership firm. However, the Tribunal disagreed with the Respondent's argument, emphasizing that the appellant, as a private limited company, should not bear the liability of the partnership firm solely based on the Director's previous association with the partnership. The Tribunal held that the appellant had made a prima facie case against the demand and penalties in the impugned order, concluding that the appellant, as a separate legal entity, should not be held responsible for the actions of the partnership firm. Therefore, the Tribunal granted the waiver of pre-deposit and a stay of recovery until the appeal's final disposal.

In conclusion, the Tribunal ruled in favor of the appellant, a private limited company, by granting a complete waiver of pre-deposit and a stay of recovery of the service tax, interest, and penalties demanded until the final disposal of the appeal. The Tribunal emphasized the distinction between the legal entities of the partnership firm and the appellant company, holding that the appellant should not be held liable for the obligations of the dissolved partnership firm based on the Director's previous association with the partnership.