2025 (1) TMI 848 - AT - Service Tax

Liability to pay service tax - rent-a-cab service - transactions involving International Travel House Limited (ITH) - demand on Debit Notes raised on other associate enterprises - Extended period of limitation. Rent-a-cab service wherein the demand of Rs. 67,38,390/- has been confirmed - HELD THAT - ITC Sonar is not retaining any amount from the amount being given by the guests. The entire amount is being given back by them to ITH. From the bills raised by ITH, it is seen that they are charging the Service Tax on the guests. This documentary evidence shows clearly that ITC Sonar has not provided any service either to the guests or to ITH. It is seen that ITH has not made any payment towards any consideration to ITC. Even otherwise, the Show Cause notice only alleges providing of renting a cab service to the guests. From the documentary evidence, it gets clarified that the appellant is not providing the rent-a-cab service to the guests. As a hotel, they may be indicating in their website various facilities being provided to the guests on its own - It is for the jurisdictional authorities to take up the matter and proceed against ITH, in case they are collecting the Service Tax under these bills and not remitting the same to the Department. In view of these factual details and documentary evidence shown, the confirmed demand of Rs 67,38,390 under the rent-a-cab service is not legally sustainable. Debit Notes raised on other associate enterprises wherein the demand of Rs. 28,54,978/- has been confirmed - HELD THAT - The appellant was registered with the Service Tax department and has been discharging the service tax payments and also they were filing their ST3 returns. Quantification of demand towards rent-a-cab services as well as debit notes raised on associate enterprises have been obtained by the Revenue from the books of accounts maintained by the appellant - it is not seen that the appellant has indulged in any suppression in these matters. Further, the appellant could be carrying bonafide belief that no Service Tax is required to be paid on the rent-a-cab service being actually rendered by ITH. In respect of the debit notes raised on other divisions, the appellant should have carried bona fide belief that since they are all part of the Divisions of the same company, there is no need to pay any Service Tax on such activities. Extended period of limitation - HELD THAT - The Department has not brought in any documentary evidence or proof to the effect that the appellant has indulged in any suppression so as to evade payment of service tax on these activities. Further, as submitted by the appellant, if service tax was required to be paid on such services, the appellant would be eligible to take the Cenvat Credit which makes the entire exercise as that of revenue neutral - the appellant cannot be fastened with the allegation of suppression with an intent to evade payment of service tax. Conclusion - The court set aside the demands for service tax under both the rent-a-cab service and associated enterprises. The appellant cannot be fastened with the allegation of suppression with an intent to evade payment of service tax. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment addresses two primary legal issues:

• Whether the appellant, ITC Sonar, is liable to pay service tax under the category of "rent-a-cab service" for the transactions involving International Travel House Limited (ITH).
• Whether the debit notes raised by ITC Sonar on other divisions of ITC Limited constitute a taxable service under the concept of "associated enterprises," thereby attracting service tax liability.

2. ISSUE-WISE DETAILED ANALYSIS

Issue A: Rent-a-Cab Service

• Relevant legal framework and precedents: The issue revolves around the interpretation of service tax liability under the "rent-a-cab service" category. The appellant argues that they merely acted as a conduit by collecting payments from guests and forwarding them to ITH, which is registered for providing such services.
• Court's interpretation and reasoning: The court found that ITC Sonar did not provide rent-a-cab services directly to guests. Instead, ITH provided these services, billed the guests, and paid the service tax. ITC Sonar collected payments only when guests did not pay ITH directly and forwarded the entire amount to ITH without retaining any portion.
• Key evidence and findings: Documentary evidence, including invoices from ITH showing service tax charges, supported ITC Sonar's claim that they did not retain any payments. The court noted that the adjudicating authority's reliance on website content to establish service provision by ITC Sonar was unsubstantiated.
• Application of law to facts: The court concluded that ITC Sonar was not liable for service tax on rent-a-cab services as they did not provide these services, nor did they receive any consideration from ITH.
• Treatment of competing arguments: The court dismissed the department's argument that ITC Sonar provided rent-a-cab services based on website content, emphasizing the lack of corroborative evidence.
• Conclusions: The demand for service tax under the rent-a-cab service category was not legally sustainable, and the court set aside the impugned order, allowing the appeal on this issue.

Issue B: Debit Notes and Associated Enterprises

• Relevant legal framework and precedents: The issue involves the interpretation of service tax liability for transactions between divisions of the same corporate entity, under the concept of "associated enterprises" as defined in the Income Tax Act.
• Court's interpretation and reasoning: The court referred to Circular No. 334/1/2008-TRU and relevant case law, emphasizing that transactions between divisions of the same company do not constitute service provision to another legal entity.
• Key evidence and findings: ITC Sonar's argument that all divisions are part of ITC Limited and transactions are internal cost allocations was supported by precedents like Precot Mills Ltd. and Indian Oil Corporation Ltd.
• Application of law to facts: The court held that transactions between divisions of ITC Limited amounted to self-service and not taxable under service tax laws.
• Treatment of competing arguments: The department's reliance on the concept of "associated enterprises" was rejected, as the court found no separate legal entities involved in the transactions.
• Conclusions: The demand for service tax on debit notes raised between ITC divisions was not legally sustainable, and the court set aside the impugned order on this issue as well.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "From the documentary evidence placed before us, we find that ITC Sonar is not retaining any amount from the amount being given by the guests. The entire amount is being given back by them to ITH."
• Core principles established: Transactions between divisions of the same corporate entity do not constitute taxable services under service tax laws. Additionally, acting as a conduit without retaining consideration does not attract service tax liability.
• Final determinations on each issue: The court set aside the demands for service tax under both the rent-a-cab service and associated enterprises issues, allowing the appeal in full.

The judgment underscores the importance of distinguishing between actual service provision and mere facilitation, as well as the necessity of recognizing internal transactions within a single corporate entity as non-taxable under service tax laws. The court's reliance on documentary evidence and established legal precedents played a critical role in reaching these conclusions.