2021 (4) TMI 1157 - AT - Service Tax

Levy of Service Tax - appellant is a partner and the service recipient is a partnership firm - service recipient having relationship of partner and partnership firm can be categorised as service provider and service recipient or not - refundable or not even when the assessment of payment of service tax was not challenged - HELD THAT - In a partnership firm, partner s capital can be in the form of cash/asset. It can also be in the form of contribution of skill and labour alone without contribution in cash. This issue has been considered by Hon ble Supreme Court in the case of CHANDRAKANT MANILAL SHAH AND ANOTHER VERSUS COMMISSIONER OF INCOME-TAX 1991 (10) TMI 1 - SUPREME COURT . In the said case, the issue for deciding was the validity of the partnership between the Karta of a Hindu undivided family and one of his sons. The son had not brought any cash/asset as his capital contribution to the partnership but was contributing only his skill and labour. Hon ble Supreme Court observed that Indeed, skill and labour are by themselves possessions. Any possession is one of the dictionary meanings of the word 'property'. In its wider connotation, therefore, the mental and physical capacity generated by skill and labour of an individual and indeed the skill and labour by themselves would be the property of the individual possessing them. They are certainly assets of that individual and there seems to be no reason why they cannot be contributed as a consideration for earning profit in the business of a partnership firm. From the observation of the Hon ble Supreme Court it follows that remuneration received by a partner by employing his skill and labour as per partnership deed is also a profit. The profit in such circumstances can be a special share in the profit. In the present case also, the appellant is a partner performing some duties for which he has an expertise, skill in the marketing and distribution of the goods manufactured by partnership firm M/s Zydus Healthcare. And as a remuneration, the appellant have been received the amount which is nothing else but a special share in the profit. As per the plain reading of section 85(1) of Finance Act, it provides for filing an appeal before the Commissioner (Appeals) only in case an order is passed by an officer below the rank of Principal Commissioner or Commissioner of Central Excise. In the case of self assessment of Service Tax, there is no order of assessment passed by any officer below the rank of Principal Commissioner or Commissioner of Central Excise. Therefore, there is no provision corresponding to section 47(2) of Customs Act, 1962 in the Finance Act, 1994. Therefore, there is a clear distinction between the assessment under Customs and Service tax. Recovery of tax - HELD THAT - The appellant have clearly declared that they have not recovered the amount of Service Tax from Zydus Health Care and the burden of Service Tax was not passed on to the Zydus Health Care. It shows that both the authorities have ignored this declaration made by the appellant. Therefore, the contention made by them that the appellant has not satisfied that the incidence of Service Tax, for which refund claim was made, has not been passed on is apparently erroneous. The appellant are entitled for the refund of the claim made by them - Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Liability to pay Service Tax by a partner to a partnership firm.
2. Eligibility for refund of Service Tax paid, without challenging self-assessment.
3. Relationship between partners and partnership firms under the Finance Act, 1994.
4. Applicability of the concept of unjust enrichment in the refund claim.

Issue-Wise Detailed Analysis:

1. Liability to Pay Service Tax by a Partner to a Partnership Firm:
The core issue is whether the appellant, a partner in a partnership firm, is liable to pay Service Tax for services provided to the partnership firm. The Tribunal examined the nature of the relationship between the appellant and the partnership firm, citing the Partnership Act, 1932, and relevant Supreme Court judgments. It was established that a partnership firm is not a separate legal entity distinct from its partners. The Tribunal concluded that the activities performed by the appellant were part of its duties as a partner and not under a separate contract for services. The remuneration received was considered part of profit-sharing and not a consideration for services rendered. Thus, the appellant was not liable to pay Service Tax.

2. Eligibility for Refund of Service Tax Paid, Without Challenging Self-Assessment:
The Tribunal addressed whether the appellant could claim a refund of Service Tax paid without challenging the self-assessment. The Tribunal distinguished the case from customs matters where an appeal against assessed Bills of Entry is necessary. In Service Tax matters, no order is passed by the departmental officer that can be challenged. The Tribunal referred to Section 85 of the Finance Act, 1994, which does not provide for an appeal against self-assessment. Therefore, the Tribunal held that the refund claim is maintainable without filing an appeal against the self-assessment.

3. Relationship Between Partners and Partnership Firms Under the Finance Act, 1994:
The Tribunal examined whether the relationship between the appellant (partner) and the partnership firm could be categorized as a service provider and service recipient. It was noted that prior to 01/07/2012, the term 'person' was not defined in the Finance Act, 1994. The Tribunal referred to the Supreme Court's interpretation that a firm is not a separate legal entity from its partners. Consequently, the Tribunal concluded that the appellant and the partnership firm could not be treated as two distinct persons, and therefore, the Service Tax was not applicable.

4. Applicability of the Concept of Unjust Enrichment in the Refund Claim:
The Tribunal addressed the issue of unjust enrichment, noting that the appellant had declared in the refund application that the Service Tax burden was not passed on to the partnership firm. The Tribunal found that both the adjudicating authority and the Commissioner (Appeals) had ignored this declaration. Therefore, the Tribunal held that the appellant had satisfied the requirement of unjust enrichment and was entitled to the refund.

Conclusion:
The Tribunal concluded that the appellant was not liable to pay Service Tax for services provided to the partnership firm, as the relationship between the partner and the firm does not constitute a service provider and service recipient. The refund claim was deemed maintainable without challenging the self-assessment, and the appellant had satisfied the requirement of unjust enrichment. Consequently, all impugned orders were set aside, and the appeals were allowed with consequential relief.

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