2016 (10) TMI 134 - HC - Service Tax

SEZ unit - Service tax liability - principle of mutuality - business support services - activities carried out by SEZ unit of assessee and availed by units of assessee situated in DTA area - whether SEZ unit and DTA unit of the assessee should be considered as same or separate persons - Held that - Section 66 of the Finance Act, 1994, as noted, provides for levy of taxes at the rate of prescribed percentage of the value of taxable services referred to in various clauses of subsection( 105) of Section 65. For applicability of this charging section, therefore, what is needed is to ascertain the value of taxable service. In other words, service tax can be levied only if the service is provided, even if it is otherwise, a taxable service, carries a certain value. If the value of service provided is nil, there would be no occasion for charging the service tax. In essence, thus section 66 aims at collecting service tax when a certain service is provided for a value. To put it conversely, when the service is provided but no value thereof is charged, there would be no question of collecting service tax. Thus the term taxable service has a direct relation to the consideration either paid in cash or by way of deferred payment or by mentioning of any other valuable consideration. This would reinforce our belief that when no charge was collected for providing the service, there would be no question of applying a rate of tax on the value of such service. According to the assessee, providing of service by its SEZ unit to its DTA unit was merely for the purpose of convenience and SEZ unit had not collected any charge for such service from its DTA unit. Though the Assessing Officer in his order has made a brief reference to the SEZ unit receiving consideration for such service, we do not find any basis for such a conclusion. In fact, the case of assessee all along has been that invoices were raised for such services merely for the purpose of convenience and in fact, since promotional programmes were being organised, which would benefit the entire company and its different units, there was no question of charging a particular unit by SEZ unit for such service and that raising of invoices was merely for the purpose of convenience. If that be so, in our opinion, no service tax could be levied not on the principle of mutuality but, as noted, on the ground that service provided carried no actual value.

Summary

Issues Involved:
1. Maintainability of the appeal before the High Court.
2. Liability of the respondent to pay service tax for services provided by its SEZ unit to its DTA unit.
3. Interpretation of statutory provisions regarding service tax and Special Economic Zones.

Issue-wise Analysis:

1. Maintainability of the Appeal Before the High Court:
The first issue was whether the appeal against the CESTAT judgment was maintainable before the High Court or should be directed to the Supreme Court under section 35(L) of the Central Excise Act. A Division Bench had previously resolved this issue, concluding that the appeals were maintainable before the High Court in terms of section 35F of the Central Excise Act, 1994.

2. Liability of the Respondent to Pay Service Tax:
The core issue was whether the SEZ unit and the DTA unit of the respondent company could be considered separate entities for the purpose of service tax. The adjudicating authority had held that the SEZ and DTA units were distinct and separate, citing rule 4 of the Service Tax Rules, 1994, and rule 19(7) of the Special Economic Zones Rules, 2006. The SEZ unit had provided various business support services to the DTA unit, which were taxable under the Finance Act, 1994. The respondent argued that one unit of a company cannot provide service to another unit of the same company, invoking the principle of mutuality. The Tribunal, however, sided with the respondent, stating that the SEZ and DTA units could not be considered separate persons for the purpose of service tax.

3. Interpretation of Statutory Provisions:
The High Court examined several statutory provisions, including sections 66 and 65(105) of the Finance Act, 1994, and sections 2(za), 2(zc), 7, and 30 of the Special Economic Zones Act, 2005. The court noted that SEZ units enjoy special tax exemptions and are required to maintain separate books of accounts, as per rule 19(7) of the Special Economic Zones Rules, 2006. Despite these separations, the court concluded that the principle of mutuality did not apply because the SEZ unit and DTA unit, while distinct for accounting purposes, were not separate legal entities.

Conclusion:
The court ultimately dismissed the Revenue's appeal, but on different grounds than the Tribunal. It held that no service tax was leviable because the SEZ unit had not charged the DTA unit for the services provided. The court emphasized that service tax could only be levied on services that carried an actual value, and in this case, no such value was charged. The appeal was dismissed, affirming that no service tax was due as the SEZ unit did not collect any charge for the services rendered to the DTA unit.