2018 (9) TMI 662 - AT - Service Tax

Liability of Service Tax - services provided to its associate company i.e. M/s. CMST-BSNL - services provided to M/s. CMST-BSNL, Jaipur which is having a separate service tax registration? Held that - For the provision of service there has to be a service provider as well as a service recipient - No doubt appellant is a service provider and M/s. CMST, BSNL is service recipient and that both have different service tax registration, but the fact remains is that they both have the same PAN number as such both have same incorporation i.e. both are the one and the same entity. This observation make it clear that mandatory requirement for service tax that is of existence of two different entities is absolutely missing in the case in hand. Hence the transaction between the two cannot be termed as provision of service and hence no service tax is payable - Once this is the situation Section 67 of the Act has no applicability nor will be relevant the explanation in sub section 4 thereof. The adjudicating authority below has wrongly relied upon the concept of book adjustment which is relevant only when the event is taxable. Extended period of limitation - Held that - Once no taxability is involved question of evasion of tax does not arise. The question for assessee to suppress or mis-represent the fact with the intent to evade tax also retains no relevant - the department was not entitled to invoke the extended period of limitation. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability of service tax on services provided to an associated entity with separate service tax registration.
2. Interpretation of Section 67 of the Finance Act, 1994 regarding taxable events and book adjustments.
3. Applicability of penalty in a time-barred show cause notice.

Analysis:

Issue 1: Liability of service tax on services provided to an associated entity with separate service tax registration
The main issue revolves around whether the appellant, a service provider under "Telecommunication Service," is liable to pay service tax on services provided to M/s. CMST-BSNL, which has a separate service tax registration. The department alleged that the appellant was not paying tax on services provided to M/s. CMST-BSNL, leading to a demand notice. The appellant argued that both entities are part of the same company, BSNL, sharing the same PAN number, and hence, the transaction should not be taxable. The Tribunal observed that for service tax liability, there must be a distinct service provider and recipient, which was lacking in this case due to the entities being part of the same organization. Therefore, the transaction between the appellant and M/s. CMST-BSNL was not considered a provision of service, and no service tax was deemed payable.

Issue 2: Interpretation of Section 67 of the Finance Act, 1994 regarding taxable events and book adjustments
The Tribunal analyzed Section 67 of the Finance Act, 1994, which deals with taxable events and book adjustments for service tax purposes. It was emphasized that service tax is imposed when a service is rendered to a customer or client, as per Section 65(105)(zzzx) of the Act. The Tribunal concluded that the concept of book adjustment is relevant only when the event is taxable. Since the transaction between the appellant and M/s. CMST-BSNL did not constitute a taxable event, the explanation in Section 67(4) was deemed irrelevant. Therefore, the adjudicating authority's reliance on book adjustments was considered misplaced.

Issue 3: Applicability of penalty in a time-barred show cause notice
The Tribunal further addressed the question of penalty imposition in a time-barred show cause notice. It was determined that since no tax liability existed due to the non-taxable nature of the transaction, the question of evasion of tax did not arise. Consequently, the department was held to be not entitled to invoke the extended period of limitation. The show cause notice was deemed time-barred, leading to the conclusion that the penalty imposed by the commissioner was unjustified. As a result, the Tribunal set aside the order under challenge and allowed the appeal, pronouncing the decision in favor of the appellant on _11.09.2018_.