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TMI Blog2021 (4) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruitment Agency, Business Auxiliary Services and IPR services, Scientific Technical Consulting Services, Online information and Database Retrieval Services, Market Research Agency, Business Support Services, Clearing and Forwarding Services, Renting Of Immovable Property Services, Recovery Agents, Technical Inspection and Certification services, Banking Financial Services which are classifiable under taxable services definition under section 65 of the Finance Act, 1994, for which they are registered with Service tax department. The appellant entered into a partnership agreement with a partnership firm M/s Zydus Healthcare wherein the appellant is a partner with 96% share and 2% each share of other two partners namely Cadila Healthcare Staff Welfare Trust and German Remedies Ltd. In the partnership agreement, an addendum dated 01/04/2007 was added. As per the terms of the addendum of the partnership agreement, appellant agreed to provide certain services to firm partnership M/s Zydus Healthcare related to promotion and marketing of firm s product and various related services. The appellant towards the said services received remuneration from M/s Zydus Healthcare on which they have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal status of partnership firms and its partners and it was again reiterated by the Supreme Court that a partnership firm has no legal existence separate from the partners, under the Partnership Act. 2.2 He submits that the Revenue s reliance on the State of Punjab v. Jullundur Vegetables Syndicate1966 AIR 1295 is not correct as in that case, under Sales Tax Act, a dealer of a firm is specifically defined. It is not applicable in the present case. Moreover, the judgment of State of Punjab v. Jullundur Vegetables Syndicate (supra) has been distinguished by the other bench in the case of Gopal Industries vs CCE, Indore 2007 (214) ELT 19 (Tri-LB). His further submission is that service tax was paid for services which is defined under section 65 (105)(zzb).The business auxiliary services applied for a service provided to a client by any person. Hence, two distinct persons are required to attract section 65(105)(zzb).Since in the present case, the services have been provided by the appellant who is a partner of Zydus Healthcare which is a partnership firm, no two distinct persons exist. Therefore, the service tax was not payable. 2.3 He placed reliance on the Law of Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the judgment in the case of Collector of Central Excise, Kanpur Versus Flock (India) Pvt. Ltd. 2000 (120) ELT 205(SC). He submits that in the said case, the learned Assistant Commissioner after examining the contents of the product passed an order regarding classification of the goods. The assessee had not preferred an appeal against the said order and directly filed for refund. The Hon ble Supreme Court in that context held that without filing an appeal, challenging the order of classification, refund is not maintainable. Therefore, considering the facts of the present case, Revenue s reliance in the case of Flock India Pvt. Ltd. (supra) is totally inapplicable. As regard the reliance in the case of Escorts Ltd. vs UOI ors. 1994 Supp. 3 SCC 86, he submits that it is a Custom s case and solely based on Section 47(2) of the Customs Act. Therefore, the same is not applicable in the case of Service Tax. Reliance was made by Revenue in the case of M/S. Priya Blue Industries Ltd vs Commissioner of Customs (Preventive) 2004 (172) ELLT 145, the same is in respect of self assessment of Bills of Entry. Therefore, being a customs case judgment is not applicable. The Revenue further rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rashtra Cylinders P Ltd. vs CESTAT, Mumbai 4. 2006 (4) STR 473 (Tri- Delhi)- KEC International Ltd. Vs.CCE, Jaipur-I 5. 2006(4) STR 585 (Tri- Chennai)-CCE, Chennai vs. E.I.D. Parry India Ltd. 6. 2002 (146) ELT 241 (SC)- Metal Forgings Vs. Union of India 7. 2020 (372) ELT 266 (Tri- Hyd)-Adani Power Ltd. vs. Commr. of CT Rangareddy-GST, Telangana 8. 2012 (28) STR 273 (Tri- Chennai)- CST, Chennai vs Hardy Exploration Production (India) Ltd. 9. 2019 (31) GSTL 38 (MP)- Commissioner of CGST C.Ex. Vs. National Fertilizers Ltd. 3.1 He further submits that the partners and partnership firms are clearly separate entities. Therefore, even though the appellant is a partner, but since provided services to the partnership firm, it is between two different entities. Therefore, the Service Tax was correctly payable. In this regard, he placed reliance on the following judgments: 1. 2008 (10) STR 529 (Tri- Kol)- Sushant Agarwal Vs. CC, (Port) 2. 1983 (13) ELT 1467 (SC)-Agarwal Trading Corporation Ors. Vs ACC, Calcutta Ors. 3. 2013 (287) ELT 26 (Guj.)-Sintex Industries Ltd. vs CCE 4. 2015 (323) ELT A71 (SC)- Mytri Enterprises vs Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has 96% share in profit and two other partners i.e., M/s Cadila Healthcare staff trust and M/s German Remedies have 2% each shares in the profit. All the three partners entered into a partnership deed dated 01/03/2007, and the said partnership deed was amended vide addendum dated 01/07/2007 As per the amended partnership deed, the appellant is a partner who undertook the activities related to marketing and distribution of the products of the partnership firm to enable the partnership firm to expand market s share and improve overall sales and earnings. In the partnership deed, the function of the appellant has been categorically stated which are extracted below: A. Providing services relating to Promotion and marketing of the Firm s products including providing of Marketing Infrastructure, product development and promotion, Information Data Base, IT and other system support and Inventory and supply chain management for the same. B. Functioning as consignment and sales agent of the firm for storage, sales and distribution of the Firm s productions throughout India and for the purposes of Sales Tax/VAT; either directly or through the clearing, forwarding and handling age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho are partners of the partnership firm are individually called as partners and the same very persons also called collectively as firm. Therefore, partners and partnership firm cannot be treated as two distinct persons. 4.1 It is also observed that in the Finance Act,1994 the term Person was not defined prior to 01/07/2012. First time the term Person in the Finance Act, 1944 was defined with effect from 01/07/012 vide section 65B(37) of the Finance Act, 1994 which included the firm. Therefore, prior to 01/07/2012, that is the period involved in the present case, the definition of Person provided under section 65b(37) was not existing. Therefore, same cannot be made applicable retrospectively. Even prior to 01/07/2012, if the definition of Person provided under General Clause Act is considered, the same is defined under section 3 (42) of General Clauses Act 1897 as under: (42) Person shall include any company or association or body of individuals whether incorporated or not. Even as per the definition of General Clauses Act, Person does not include the partnership firm. Therefore, the service is taxable if it is provided to a distinct person. Such person does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividuals. The similar issue raised in the above case was once again considered by the Hon ble Supreme Court in the case of Commissioner of Income Tax vs R.M. Chidambaram Pillai (supra). The relevant portion of the order is reproduced below: First principles plus the bare text of the statute furnish the best guidelight to understanding the message and meaning of the provisions of law. Thereafter, the sophisticated exercises in precedents and booklore. Here the first thing that we must grasp is that a firm is not a legal person even though it has some attributes of personality. Partnership is a certain relation between persons, the product of agreement to share the profits of a business. 'Firm' is a collective noun. a compendious expression to designate an entity, not a person. in income-tax law a firm is a unit of assessment, by special provisions, but is not a full person; which leads to the next step that since a contract of employment requires two distinct persons, viz., the employer and the employee, there cannot be a contract of service, in strict law, between a firm and one of its partners. So that any agreement for remuneration of a partner for taking part in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote. We quote: In some systems of law this separate personality of a firm apart from its members has received full and formal recognition as, for instance, in Scotland. That is, however, not the English common law conception of a firm. English lawyers do not recognise a firm as an entity distinct from the members composing it. 'Our partnership law is based on English law and we have also adopted notions of English lawyers as regards a partnership firm. From the above both the judgments it has been settled that the firm is not a different entity or person in law than its partners. It is merely an association of individuals and a firm name is only a collective of those individuals who constitute a firm. With this law laid down by the Apex Court, it cannot be said that the appellant being the partner and M/s Zydus Healthcare being a partnership firm have relationship of service provider and service recipient. 4.2 The Revenue strongly relied upon the judgment of Hon ble Supreme Court in the case of State of Punjab v. Jullundur Vegetables Syndicate (supra) to argue that as per the said judgment, a firm which is a dealer is a person. We agree with the submission of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to their shares in the business. Therefore, the entirety of such profits should be brought to charge and no portion be exempted by giving the same away to a partner as his salary, bonus, commission, remuneration or interest. A partner is bound to find the necessary finances for the partnership and hence any interest on capital supplied by the partner is not deductible. A partner's rendering services to the firm stands on the same footing as his providing capital; only instead of in money, in kind. Further, no remuneration is permissible to a partner for his rendering services to the firm, since the carrying on of the business of the partnership is a primary duty which all the partners, or some of the partners acting for all, are required to do by the law relating to partnership. The matter may be looked at another way too. In law, a partner cannot be employed by his firm, for a man cannot be his own employer. A contract can only be bilateral and the same person cannot be a party on both sides, particularly in a contract of personal employment. A supposition that a partner is employed by the firm would involve that the employee must be looked upon as occupying the position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry view taken by the Hon ble Madras High Court on the identical issue was overruled by Hon ble Supreme Court in the aforesaid case by observing as follows: We regard this conclusion as unsound, the source of the error being a failure to appreciate that the salary of a partner is but an alias for the return, by way of profits, for the human capital--sweat, skill and toil are, in our socialist republic, productive investment---he has brought in for common benefit. The immediate reason for payment of salary was service contract but the causa causans is partnership. The Hon ble Punjab Haryana High Court in the case of Bhagwant Singh vs Commissioner of Income Tax 1959 PH Air 59 also dealt with the same issue. In the said case, the issue that arose for consideration was nature of salary drawn by the partner, which was held by the Hon ble High Court that when the partnership agreement decides that one of the partners will receive salary for the services rendered by him to the partnership business, a contract is regarded as a contract of partnership and is not designated as contract of service. The Hon ble High Court observes that partnership is an agreement between two or more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In this context, the Hon ble Supreme Court observed as follows: The nature of consideration will depend on the nature of the contract between the two individuals. As is well known, the aim of business is earning of profit. When an individual contributes cash asset to become partner of a partnership firm in consideration of a share in the profits of the firm, such contribution helps and at any rate is calculated to help the achievement of the purpose of the firm namely to earn profit. The same purpose is, undoubtedly, achieved also when an individual in place of cash asset contributes his skill and labour in consideration of a share in the profits of the firm. Just like a cash asset, the mental and physical capacity generated by the skill and labour of an individual is possessed by or is a possession of such individual. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial share of profits in terms of the partnership deed. Therefore, such remuneration cannot be considered as consideration towards any services between two persons, and, hence, not liable to Service Tax. 4.6 Revenue have strongly argued that appellant s refund is not maintainable on the ground that the self assessment of Service Tax payment has not been challenged by filing appeal before the Commissioner(Appeals). In this regard, he relied upon various judgments as cited in the submission of the learned Authorised Representative above. The Revenue has mainly relied upon the Larger Bench judgment of the Hon ble Supreme Court in the case of ITC Ltd. (supra). On careful reading of the said judgment, we find that the issue involved in the ITC case is that whether non filing of appeal against assessed Bills of entry will deprive the importer is right to file a refund claim under Section 27 of the Customs Act, 1962. In the Customs matter, the appellant needs to file appeal against any decision or order passed by the officer of Custom lower in the rank than the Principal Commissioner of Customs or Commissioner of Customs. An appeal can be filed before the Commissioner (Appeals) in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llenging the order of final assessment. In these peculiar facts of the case, the Hon ble Supreme Court has observed that instead of filing the refund claim, the proper remedy was to file the appeal. However, in the present case, there is no order of final assessment by the Service Tax authorities. Therefore, the reliance cannot be placed on case of ITC (supra). 5. We also observed that the judgment of Hon ble Rajasthan High Court in the case of Central Office of Mewar Palace Org. Versus Union of India (supra) has been expressly approved by the Hon ble Supreme Court in the case of ITC Ltd. (supra) as the Hon ble Supreme Court stated that High Court judgment is not under provisions of the Customs Act. Therefore, unlike Customs, there is no express provision to file appeal against the self assessment of service tax by filing ST-3 return. Therefore, on the ground that appeal against the self assessment was not filed, the refund claim cannot be rejected. 6. The Adjudicating Authority as well as Commissioner (Appeals) also contended in their orders that the appellant have not satisfied the aspect of unjust enrichment as they have not filed any documents in this regards. On careful ..... X X X X Extracts X X X X X X X X Extracts X X X X
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