2013 (12) TMI 492 - AT - Service Tax

Demand for Service Tax, interest and penalty - Units in SEZ and DTA Seperate legal entity or not - Definition of persons read with Rule 19(7) of SEZ Rules - Held that - SEZ units do not have separate balance-sheet and audited accounts and they are considered as divisions of L & T for all statutory and other SEZ purposes - Therefore, merely the fact that invoices have been issued and agreement was entered into cannot discriminate against the appellants to take a view that SEZ units are separate entity irrespective of legal position - merely because invoices have been issued and agreement has been entered into, SEZ unit do not become separate legal entities. What is required to be done is whether in the eyes of law these units have been treated is separate entity, which is rightly submitted, has not been contradicted by the Revenue - it has not been shown as either an association of person or a body corporate, the domestic units of SEZ are separate persons either in the eyes of law or in the eyes of appellants themselves as the above discussion about issue of invoices and accounts would show. Therefore in our view in terms of definition of person, it cannot be said that the units in SEZ and DTA units can be considered as separate person. The goods as soon as they are manufactured become liable to duty irrespective of the fact whether they are sold or not. This is the reason while Central Excise statute has separate provision for remission of duty in case of goods which are destroyed in accident or fire etc. before removal and in the case of goods which become non-marketable and therefore are to be destroyed. On the other hand, service is levied on the transaction between a person and another person. In the case of service tax levy, presence of two persons is a must and these persons have necessarily to be legal persons since there is no definition of person in the Service Tax Act which would mean person has to be understood the way it is understood otherwise - Revenue has failed to show that service tax levy is attracted on the services rendered by SEZ units to DTA units of L & T unit in this case - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether services provided by SEZ units to DTA units of the same legal entity are taxable.
2. Interpretation of Rule 19(7) of SEZ Rules and the definition of "person" under SEZ Act.
3. Applicability of precedents and rulings from other cases regarding transactions between units of the same legal entity.
4. Relevance of invoices and agreements in determining separate legal entities.

Issue-wise Detailed Analysis:

1. Taxability of Services Provided by SEZ Units to DTA Units:
The primary issue was whether the services provided by SEZ units to DTA units of the same company, Larsen & Toubro (L&T), are subject to service tax. The appellants argued that since both units are part of the same legal entity, service tax should not be applicable. The adjudicating authority, however, contended that SEZ and DTA units are separate legal entities, and thus, the services provided are taxable. The Tribunal ultimately concluded that SEZ and DTA units of L&T cannot be considered separate legal entities for the purpose of service tax.

2. Interpretation of Rule 19(7) of SEZ Rules and Definition of "Person" under SEZ Act:
The Revenue relied on Rule 19(7) of SEZ Rules, which mandates distinct identities and separate books of account for SEZ and DTA units. However, the rule explicitly states that it is not necessary for SEZ units to be separate legal entities. The Tribunal emphasized that the rule applies to a single enterprise operating both SEZ and DTA units, thus supporting the appellants' argument. The definition of "person" under Section 2(5) of SEZ Act includes various entities but does not necessitate that units within the same enterprise be treated as separate persons.

3. Applicability of Precedents and Rulings:
The Tribunal considered several precedents where it was held that transactions between units of the same legal entity are not taxable. Cases like Precot Mills Ltd. v. CCE, Indian Oil Corporation Ltd. v. CCE, and Chemplast Sanmar Ltd. v. CCE supported the appellants' stance that there cannot be any service between two units of the same legal entity. The Tribunal distinguished these cases from the present one, noting that SEZ units were not involved in those cases. However, the principle that a transaction requires two distinct persons was upheld.

4. Relevance of Invoices and Agreements:
The issuance of invoices and agreements between SEZ and DTA units was argued by the Revenue as evidence of separate legal entities. The appellants admitted to issuing invoices and entering agreements but argued that these actions were for internal accounting purposes and did not establish separate legal entities. The Tribunal agreed with the appellants, stating that merely issuing invoices and agreements does not make SEZ units separate legal entities. The Tribunal emphasized the need to consider the legal standing of the units rather than their internal documentation practices.

Conclusion:
The Tribunal concluded that the SEZ units and DTA units of L&T are not separate legal entities for the purposes of service tax. The reliance on Rule 19(7) of SEZ Rules and the definition of "person" under SEZ Act was found to be misplaced by the Revenue. The precedents cited by the appellants were deemed applicable, supporting the view that transactions within the same legal entity are not taxable. Consequently, the impugned orders were set aside, and the appeals were allowed with consequential relief to the appellants.