2018 (1) TMI 378 - AT - Service Tax

Business Auxiliary Services - non-competing agreement - extended period of limitation - whether the activity undertaken by the appellant is taxable prior to 01.07.2012 or not? - Held that - prior to 01.07.2012, non-compete agreements were not specifically taxable under Finance Act, 1994. It is only with effect from 01.07.2012 when Section 66E(e) of the Finance Act agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act constituted a declared service on which service tax was payable with effect from 01.07.2012 - the period prior 01.07.2012, the amount recovered by the appellant by way of non-compete agreements are not liable to tax under the Finance Act, 1994. Whether the activity undertaken by the appellant falls under the category of Business Auxiliary Service or not? - Held that - the sale promotion means that in case of sale promotion a large population of consumer is targeted - Admittedly, the appellants are not involved in such activity but they were paid for not to target the consumers. Therefore, the activity undertaken by the appellant do not qualify under Business Auxiliary Service. Whether the extended period of extension is invokable or not? - Held that - As there were divergent view on classification of services in question, therefore, extended period of limitation is not invokable in the facts and circumstances of the case - demand barred by limitation. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Taxability of non-compete agreements prior to 01.07.2012.
2. Determination of whether the activity falls under Business Auxiliary Service.
3. Invokability of the extended period of limitation.

Analysis:

Issue (a): The question of taxability of non-compete agreements before 01.07.2012 was examined. It was established that prior to this date, such agreements were not specifically taxable under the Finance Act, 1994. The TRU Circular clarified that these agreements were not taxable before 01.07.2012. The Tribunal held that the amount received through non-compete agreements before this date was not liable to tax.

Issue (b): The analysis focused on whether the activity undertaken by the appellant could be categorized as Business Auxiliary Service. The definition of Business Auxiliary Service was scrutinized, and it was noted that the adjudicating authority claimed that the non-compete agreement promoted the goods of another company. However, after a detailed examination of the definitions of "marketing" and "promotion," it was concluded that the appellants were not involved in activities that qualified as Business Auxiliary Service. The Tribunal referred to a case law to support this conclusion.

Issue (c): The Tribunal assessed the invokability of the extended period of limitation. It was observed that the department had knowledge of the relevant documents since 10.02.2012 but did not take action within the prescribed time limit. Citing a previous Tribunal decision, it was argued that there were divergent views on the classification of services in question. Consequently, the Tribunal held that the extended period of limitation was not applicable in this case, and the demand raised was time-barred.

In conclusion, the Tribunal ruled in favor of the appellants on all issues. The impugned order was set aside, and the appeals were allowed with any consequential relief. The decision was based on the detailed analysis of each issue, including the taxability of non-compete agreements, the classification under Business Auxiliary Service, and the invokability of the extended period of limitation.

This comprehensive analysis of the judgment from the Appellate Tribunal CESTAT CHANDIGARH highlights the legal intricacies and reasoning behind the decision, ensuring a thorough understanding of the issues involved and the Tribunal's conclusions.