2006 (11) TMI 7 - AAR - Service Tax

Service Tax Advance ruling Applicant is not wholly owed Subsidiary Indian Company as they not having 99% shares of foreign company Applicant is not entitled to advance ruling as they already commenced the services on the date of the application when it was in progress

Summary

Issues:
1. Whether the applicant qualifies as a wholly owned subsidiary Indian company under Section 96A(b) of the Service Tax Act?
2. Whether the construction work for which the advance ruling is sought has already commenced?

Analysis:

Issue 1:
The applicant claimed to be a wholly owned subsidiary of a foreign company, seeking an advance ruling on the service tax liability for the Civic Centre construction work. The Authority pointed out that the applicant did not meet the criteria of a wholly owned subsidiary Indian company as per Section 96A(b) of the Service Tax Act. The applicant argued that the term "wholly owned subsidiary Indian company" is not defined in the Act or the Companies Act. The discussion delved into the definitions of "holding company" and "subsidiary company" under the Companies Act, emphasizing the requirement for the holding company to hold all equity shares of the subsidiary to qualify as a wholly owned subsidiary. It was concluded that the applicant did not meet the criteria as the foreign holding company did not hold 99% shares, making it challenging to treat the applicant as a wholly owned subsidiary Indian company.

Issue 2:
The second ground for rejection was that the construction work had already commenced when the application was filed. As per Section 96A(a) of the Service Tax Act, an advance ruling pertains to a service proposed to be provided by the applicant. Since the construction work was ongoing at the time of the application, it was considered not a proposed service, rendering the application not maintainable. This interpretation was supported by precedents involving similar scenarios, such as the cases of M/s McDonald's India Pvt. Ltd. and Pfizer Limited. Consequently, the application was rejected on this basis.

In conclusion, the judgment highlighted the importance of meeting specific criteria to qualify as a wholly owned subsidiary Indian company for seeking an advance ruling under the Service Tax Act. Additionally, the timing of the service in question played a crucial role in determining the maintainability of the application for an advance ruling.