2014 (7) TMI 973 - AT - Service Tax

Waiver of pre deposit - Business Auxiliary Service - realization of money due - book adjustment by the client would amount to receipt of consideration or not - there was opening dues from AASL to IAL amounting to ₹ 134.53 crores. By Mar 2007 this amount increased to ₹ 306.75 crores. This is the reason why the appellant is contesting that they have not realised the monies due from AASL - Held that - explanation in section 67 of Finance Act, 1994 defining value of taxable services inserted with effect from 18-4-2006 - There is no such clear provision for period prior to 18-4-2006. But when money is deducted by one person from amounts due to another in the hands of the former and such adjustments are agreed upon, it is to be considered that payment has been made by the latter to the former. In the instant case IAL was receiving payments through the mechanism of deduction from amounts due to AAIL in the hands of IAL. The fact that the operations of AAIL resulted in loss and the losses were absorbed by IAL cannot negate the fact that at the time of rendering the services consideration thereon was received. So we are not in prima facie, agreement with the argument that IAL had not received payment for services rendered. Considering the fact that the appellant is a national carrier under the ownership of Government of India presently facing serious financial difficulties and in view of the overall appreciation of the issues involved as analyzed above - unconditional stay granted.

Summary

Issues Involved:
1. Relationship between Indian Airlines Ltd. (IAL) and Airline Allied Services Ltd. (AASL).
2. Taxability of services provided by IAL to AASL under Finance Act, 1994.
3. Consideration of IAL and AASL as separate entities.
4. Time-bar of the Show Cause Notice.
5. Financial hardship of the appellant.

Issue-wise Detailed Analysis:

1. Relationship between Indian Airlines Ltd. (IAL) and Airline Allied Services Ltd. (AASL):
The appellant argued that IAL and AASL cannot be considered as separate entities because AASL was a 100% subsidiary of IAL, and the activities performed by IAL were essentially managing its own affairs. The appellant cited the Supreme Court decision in the case of State of U.P. v. Renusagar Power Co., arguing that if the corporate veil is lifted, IAL and AASL would be seen as one entity. The Tribunal noted that the adjudicating authority did not examine this argument in detail and highlighted the need for a thorough examination of whether IAL was managing its own affairs through AASL.

2. Taxability of services provided by IAL to AASL under Finance Act, 1994:
Revenue contended that the activities carried out by IAL under the agreements with AASL involved services taxable under the Finance Act, 1994, specifically under "Business Auxiliary Service." The appellant countered that service tax is payable only when consideration is received for services rendered. The Tribunal noted that IAL was receiving payments through deductions from amounts due to AASL, and the fact that AASL's operations resulted in losses absorbed by IAL did not negate the receipt of consideration at the time of rendering services.

3. Consideration of IAL and AASL as separate entities:
Revenue argued that IAL and AASL were separate entities under the Companies Act, 1956, and were treated as such by the parties themselves, as evidenced by the agreements specifying services and remuneration. The Tribunal found that the agreements and the clauses therein indicated that services were rendered, and remuneration was specified, supporting Revenue's position that the entities were separate.

4. Time-bar of the Show Cause Notice:
The appellant argued that the Show Cause Notice dated 24-10-2008 for the period July 2003 to March 2007 was time-barred as it was issued beyond one year. They contended that their activities were in the public domain and published in their balance sheets, and hence, the extended period could not be invoked. The Tribunal noted that the statutory auditors had pointed out the service tax liability, and IAL did not pay the tax despite this, indicating wilful non-payment and justifying the invocation of the extended period.

5. Financial hardship of the appellant:
The appellant submitted that they were facing serious financial difficulties, and pre-deposit of the demanded amount would cause hardship. The Tribunal acknowledged the financial difficulties faced by the appellant, a national carrier under the ownership of the Government of India, and waived the requirement of pre-deposit for the admission of the appeal, granting a stay on the collection of dues during the pendency of the appeal.

Conclusion:
The Tribunal found that the main argument of the appellant regarding the lifting of the corporate veil and the consideration of IAL and AASL as one entity required detailed examination. It also noted that IAL had received consideration for services rendered through deductions from amounts due to AASL. The invocation of the extended period for the Show Cause Notice was justified due to the wilful non-payment of tax. Considering the financial difficulties, the Tribunal waived the pre-deposit requirement and stayed the collection of dues during the appeal's pendency.