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TMI Blog2020 (12) TMI 1055X X X X Extracts X X X X X X X X Extracts X X X X ..... on Plants, which constituted the Demerged Undertakings and which alone stood merged with the Appellant. Even in such a situation, it is doubtful whether the Appellant could be held to be liable for discharge service tax liability of the Demerged Undertakings . The show cause notice could have been issued to Abhijeet Ltd. and Corporate Ltd. and not to the appellant, which is a service recipient and not a person liable to pay service tax under section 68 of the Finance Act. Appeal allowed - decided in favor of appellant. - SERVICE TAX APPEAL NO. 50893 OF 2015 - FINAL ORDER NO. 51630/2020 - Dated:- 7-10-2020 - MR. JUSTICE DILIP GUPTA, PRESIDENT AND MR. C.L. MAHAR, MEMBER (TECHNICAL) Shri B.L. Narasimhan, Advocate for the Appellant Shri R.K. Manjhi, Authorized Representative of the Department ORDER M/s Jayaswal Neco Industries Ltd. [ the Appellant ] has sought the quashing of the order dated December 23, 2014 passed by the Commissioner of Customs, Central Excise and Service Tax, Raipur [ the Commissioner ]. The order confirms the demand of service tax under section 73 of the Finance Act, 1994 [the Finance Act ] with interest and penalties. 2. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice tax on commission / discounts paid to Abhijeet Ltd. and Corporate Ltd., alleging that they acted as commission agents of the Appellant and had received commission from the Appellant, which was taxable under business auxiliary service [BAS]. The reason for demanding tax from the Appellant was that Abhijeet Ltd. and Corporate Ltd. had merged with the Appellant and, therefore, the Appellant was liable to pay the service tax that was payable by the Abhijeet Ltd. and Corporate ltd. 5. The Appellant filed a reply to the aforesaid show cause notice. Apart from making submissions on merit, it was also asserted by the Appellant that the authority did not have the jurisdiction to issue show cause notice. The relevant paragraphs of the reply filed by the Appellant on this issue are reproduced below:- A. Show Cause Notice Issued Without Jurisdiction A.1 The Noticee submits that the instant show cause notice dated April 17,2013 has been issued without jurisdiction on the Noticee and is liable to be quashed on this ground itself. It is submitted that the alleged taxable service, if any, has been provided by Abhijeet and Corporate, who are separate legal entities and the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistration with service tax authorities. Since person was not defined, it s meaning has to be adopted from General Clauses Act, 1987 wherein it has been defined to include any company, association or body of individuals whether incorporate or not. Thus, apart from natural person the defined artificial judicial entities have been defined to be person. A.8. Accordingly, under service tax laws only a natural person or artificial judicial person was liable to pay service tax. Factories of Abhijeet Corporate which merged with Noticee were never judicial person required to take registration with service tax authorities. The aforesaid fact of merger of factories was intimated along with copies of orders of the High Court to revenue authorities. It was the body corporate, the legal entities Abhijeet Corporate who were required to take registration pay service tax (assuming without admitting that other allegations in the show cause notice dated April 17, 2013 are correct). A.9. As per section 73 read with proviso, the Central Excise officer was empowered to serve a show cause notice only on the person chargeable to service tax. In the instant case, the persons chargeable to ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, accordingly been filed to assail the aforesaid order passed by the Commissioner. 8. Shri B.L. Narasimhan, learned Counsel appearing for the Appellant made the following submissions:- i. The Appellant is not liable to pay service tax as the legal entities of the service providers had not merged with the Appellant. The Appellant only took over the factories of Abhijeet Ltd. and Corporate Ltd. located in Siltara but Abhijeet Ltd. and Corporate Ltd. continued to exist and operate as separate legal entities in their own right. Therefore, the very basis for proceeding is based on an assumption which is factually and legally untenable; ii. The Appellant did not receive BAS from Abhijeet Ltd. and Corporate Ltd. The transaction between the Appellant and Abhijeet Ltd. /Corporate Ltd. was that of sale/purchase, on a principal to principal basis. The definition of commission agent is, therefore, not satisfied in the present case, and hence the service is not a taxable service under section 65 (105) (zzb) of the Finance Act; iii. Even otherwise, services received from the demergerd undertakings would be considered as service to self from the 'appointed date'; iv. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellant shared profits with Abhijeet Ltd. and Corporate Ltd. by way of discounts and incentives, which were recorded in the books of account of the Appellant as COMM. SALES PIG IRON DRI and COMMISSION OF SALES . 12. In order to resolve the issue that has arisen for consideration in this Appeal, it would be appropriate to refer to the Scheme of Arrangement between Abhijeet Infrastructure Limited (Demerged Company) with the Jayaswal Neco Industries Limited (Resulting Company) and their respective share holders and creditors. The Scheme of Arrangement between Corporate Ispat Alloys Limited (Demerged Company) and the Appellant (Resulting Company) and their respective share holders and creditors is almost identical. 13. As noted above, the Company Petition filed for sanction of the Scheme of Arrangement was allowed by the Bombay High Court by order dated November 13, 2009. The relevant portion of the order is reproduced below: 1. This is a petition by Abhijeet Infrastructures Ltd., praying for sanction of scheme of arrangement for merger annexed to the petition as Annexure-5, whereby the de-merged Undertaking will be merged along with its assets and liabilities wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss including documents of title to the goods, outstanding moneys, receivable arising from sale of goods, receivables by way of cash assistance and / or incentives under various incentive Schemes, claims including claims by way of refund of customs/excise duties under the duty drawback credit scheme or any other scheme, bills, invoices, documents, insurance policies, guarantees, engagements and rights pertaining to Demerged Undertakings as on the effective date; and f. All employees engaged in or relating to Demerged Undertakings and its business, activities and operations as on the Effective Date. 16. Paragraph 2 deals with BACKGROUND and is reproduced below:- 2. BACKGROUND 2.1 The Scheme of Arrangement, inter alia, envisages Demerger of Demerged Undertakings of the Demerged Company and transfer and vesting the Demerged Undertakings in the Resulting has set up a Sponge Iron Plant (DRI) of 350 TPD capacity and 15 MW Waste Heat Company. 2.2 The Demerged Company Recovery based Power Plant established at Sitara Growth Centre, Raipur, Chandigarh. 2.3 The Resulting Company is engaged in the business of production of Pig Iron, Cast Iron and Steel Castings r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors and all those who deal with the Demerged Undertakings and will not affect the status of any person in any manner. 4.4 The Demerger of the Demerged Undertakings will create enhanced value for all the stakeholders and the Board of both the companies would focus their whole attention at all times in achieving organizational goals effectively and efficiently in the best interests of the shareholders, creditors and all persons connected with the Demerged Company and the Resulting Company. 4.5. The Demerger would naturally create larger scope for modernization, expansion and independent value addition. 18. Paragraph 5 deals with Transfer and Vesting of the Undertakings and other Components of the Scheme of Arrangement. Clause 5.22 is reproduced below:- 5.22 Without prejudice to the generally of the above and upon the coming into Force of the Scheme, all assets, properties, rights, entitlements, benefits, liabilities, contingent liabilities, and obligations pertaining to Demerged Undertakings hereby transferred to and vested in the Resulting Company, shall belong to and be owned, controlled and managed by the Resulting Company, together with charges and encumbr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. had merged with the Appellant, it was the Appellant that was liable to pay service tax that would otherwise have been payable by Abhijeet Ltd. and Corporate Ltd. 24. The Commissioner has placed emphasis on paragraph 5.22 and paragraph 4.2.2 of the Scheme of Arrangement to conclude that all the liabilities of Abhijeet Ltd. and Corporate Ltd. stood transferred to the Appellant and, therefore, the Appellant was liable to pay service tax payable by Abhijeet Ltd. and Corporate Ltd. 25. This understanding of the Scheme of Arrangement is clearly erroneous. Paragraph 4.1 of Scheme of Arrangement intends to cause a Demerger of the Demerged Undertakings from Demerged Company and vesting of them in the Resulting Company. Paragraph 4.2.1 provides that all the properties comprised in the Demerged Undertakings immediately before the Demerger shall become the properties of the Resulting Company by virtue of the Demerger. Paragraph 4.2.2 provides that all the liabilities, including contingent liabilities, relatable to and forming part of the Demerged Undertakings , immediately before the Demerger shall become the liabilities of the Resulting Company by virtue of the Demerger. Parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the purchaser and the State Government, particularly when the State Government was not even a party to the instrument. The observations of the Supreme Court are as under:- 1. The question of law involved in this appeal is whether the purchaser of business carried on by a dealer as defined in the Madras General Sales Tax Act, 1939 (Madras Act No. IX of 1939), hereinafter called the 'Act', can be made liable for arrears of sales-tax due from the dealer in respect of transactions of sale which took place before the, transfer of the business under Rule 21-A of the Rules framed in exercise of the powers conferred on the State Government by s. 19 of the Act. 2. The respondent purchased, by a registered instrument dated October 5, 1956, the business carried on by one Purushottam Raju under the name-All India Trading Company. Purushottam Raju was the sole proprietor of the business and had been assessed to sales-tax in respect of his turnover for the years 1948-49 and 1949-50. The assessee paid some amounts towards sales-tax thus determined, but there remained some arrears of sales-tax i.e., ₹ 3836-4-0 for 1948-49 and ₹ 1218-1-9 for 1949-50. The Sales-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate specified in section 66 in such manner and within such period as may be prescribed. (2) Notwithstanding anything contained in sub-section (1), in respect of any taxable service notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66 and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service. 31. The show cause notice, therefore, also could have been served only upon the person chargeable to service tax. This is also clear from a perusal of section 73 (1) of the Finance Act which is reproduced below: 73 . (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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