2024 (11) TMI 1047 - AT - Service Tax

Service tax liability - rendering of service - sale/ transfer as a going concern by way of slump sale as defined under the Income Tax Act 1961, amounts to service - exemption from service tax under Sr. No. 37 of Notification No. 25/2012-ST - demand for Service Tax under the Proviso to Section 73 (1) with interest u/s 75 and imposed penalty equal to the said amount of service tax u/s 78. HELD THAT - As per entry in Notification No. 25/12 ST dated 20.06.2012 Services by way of transfer of the going concern as a whole or an independent part thereof is exempted. Revenue, in the impugned order has denied the aforesaid exemption on the ground that in the present case the transfer of business is not an independent part of the appellant for the reason that the appellant is involved in the business of Software Development and the transfer of business is also nothing but a business of software development. Therefore, it is not an independent part of the appellant s overall business. Appellant before transfer of as going concern, they were providing a software solution of a product exclusively developed for the buyer of the business in the present case i.e. M/s ZeroChaos Workforce Solutions Private Limited. Therefore, the activity of software development, which was sold to M/s ZeroChaos was exclusively being done for ZeroChaos, therefore, it is clear that the software solution business which were earlier provided to ZeroChaos was absolutely independent, than their other software development business meant for other customers. Therefore, it is clear that the transfer of business as per the business agreement dated 30.10.2014 an exclusive part of the business of the appellant was out rightly transferred to ZeroChaos. The term used in the exemption entry that an independent part thereof indicates that there should not be any situation where even though a business is transferred but the same is not independent and consequently the same is still continued by the transferor. In the present case, the business related to ZeroChaos was exclusively being done for M/s. ZeroChaos and the entire business which was being done for M/s. Zero Chaos has been transferred. As per the agreement, it is clear that the same business is not subsequently continued by the appellant, which is also otherwise not possible, since, software solution was made and carried out exclusively for M/s ZeroChaos, the same business cannot be retained by the appellant for some other customer. Appellant has transferred an exclusive part of their business to the transferee M/s. ZeroChaos, therefore, it is clearly an independent part. In this position, we do not find any doubt about the eligibility of the exemption to the appellant. Therefore, we hold that the appellant is entitled for the exemption under Sr. No. 37 of Notification No. 25/2012-ST dated 20.06.2012. Since, we decide that the demand is not sustainable only on the ground that the appellant is eligible for exemption Notification 25/2012-ST, we are not addressing the issue that whether the transfer of business as slump sale as going concern, is service or otherwise.

Summary

Issues Involved:

1. Whether the sale of an identified part of the business as a going concern and slump sale is considered a "service" under the Finance Act 1994, and thus liable to service tax.
2. If considered a "service," whether the transaction is exempt from service tax under Sr. No. 37 of Notification No. 25/2012-ST.
3. The sustainability of the demand for service tax and the imposition of penalties under the Finance Act 1994.

Issue-wise Detailed Analysis:

1. Sale as a "Service" Under the Finance Act 1994:

The primary issue was whether the sale of a part of the business as a going concern and slump sale qualifies as a "service" under Section 65B(44) of the Finance Act 1994. The appellant argued that the transaction does not constitute a "service" as it involves the transfer of goods and assets, which are not covered under the definition of "service" unless it involves a works contract or supply of food and drink. The tribunal referenced the case of Gharda Chemicals Limited, where it was held that such a slump sale does not amount to a service. The tribunal did not explicitly decide on this issue, as it resolved the appeal on the grounds of exemption.

2. Exemption Under Sr. No. 37 of Notification No. 25/2012-ST:

The tribunal examined whether the transaction was exempt from service tax under Sr. No. 37 of Notification No. 25/2012-ST, which exempts "services by way of transfer of a going concern, as a whole or an independent part thereof." The appellant contended that the transferred business was an independent part dedicated exclusively to ZeroChaos and thus qualified for the exemption. The tribunal found that the business transferred was indeed an exclusive and independent part, as it was solely dedicated to providing services to ZeroChaos. Consequently, the tribunal concluded that the appellant was entitled to the exemption under the notification.

3. Sustainability of Service Tax Demand and Penalties:

Since the tribunal found the transaction exempt under the notification, it did not address whether the transfer constituted a "service" or the applicability of service tax. The tribunal also did not delve into the sustainability of the demand for service tax under the proviso to Section 73(1) and the imposition of penalties under Section 78 of the Finance Act 1994. The appellant had argued that there was no fraud, suppression, or intent to evade tax, and the issue was one of legal interpretation. However, these arguments became moot due to the tribunal's finding on the exemption.

Conclusion:

The tribunal set aside the impugned order, allowing the appeal on the grounds that the appellant was entitled to the exemption under Sr. No. 37 of Notification No. 25/2012-ST. The tribunal did not address the issue of whether the transaction constituted a "service" or the applicability of service tax and penalties, as the exemption rendered these considerations irrelevant.