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TMI Blog2024 (6) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... ions to be followed by M/s SILP like non-compete clauses, performance guarantee for two years etc., since they have not received any consideration as held by the Adjudicating authority. Even on merit, terms and conditions in the agreement entered by M/s SILP and Ola are general in nature and considering the indemnity clause, there is no consideration involved in the present agreement to quantify the service element in the above said agreement. As held by Hon ble Apex Court in the matter of M/s Ishikawajma Harima Heavy Industries [ 2007 (1) TMI 91 - SUPREME COURT] , in construing a contract, the terms and conditions thereof are to be read as a whole. A contract must be construed keeping in view the intention of the parties. No doubt, the applicability of the tax laws would depend upon the nature of the contract, but the same should not be construed keeping in view the taxing provisions. Similarly, as observed by the Tribunal in the matter of M/s Universal Medicare [ 2019 (6) TMI 166 - CESTAT AHMEDABAD] , an agreement has to be interpreted as per the language and intention of the parties to such agreement. Once an ongoing concern is transferred along with assets and liabilities by pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellants submitted that the amount received by them is towards the sale of equity share of M/s. SILP and no consideration is received towards the Non-compete and Non-solicit part of the agreement. In the absence of any consideration, there is no service tax liability. Moreover, it is transfer of an ongoing concern and it is exempted from the service tax as per Notification No. 25/2012-Service Tax dated 20.06.2012. However, a SCN was issued on 07.09.2018 proposing demand of service tax along with applicable interest and penalty in respect of Non-compete and Non-solicit agreement. The Appellants submitted detailed submissions, however the Adjudicating authority held that the buyout of M/s SILP by Ola Cabs is to eliminate the competition, hence, the dominant character of the agreement is Non-compete and Non-solicitation. Regarding consideration, it is held that it is an independent agreement and the consideration for sale of the share mentioned in Share Purchase Agreement is sufficient and adequate to cover the Non-compete agreement, which is assessed as 80% of the amount received towards the transaction. Further, to invoke the extended period of limitation, the Adjudicating authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttention to the definition of Declared Service. Section 65B (22) of the Act, is reproduced herein below: declared service means any activity carried out by a person for another for consideration and declared as such under Section 66E . Section 66E . Declared Services- The following shall constitute declared services, namely:- (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. 5. Learned Counsel also drew our attention to clause 2 of the Non-compete and Non-solicit agreement, which were considered as service by Adjudication authority to conclude the agreement under declared service. The Grantors hereby acknowledge that the Purchase Price paid by the Grantee under the Share Purchase Agreement to them is sufficient and adequate consideration for the covenant undertaken by them under this Agreement. It is clarified that if any Tax (other than Income Tax) becomes payable in respect of any portion of the Purchase Price Paid by the Grantee to the Grantors under the Share Purchase Agreement as a direct result of the covenants undertaken by them under the Agreement, the same shall be borne entirely by the Grantee with no recourse to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the matter of M/s Bharat Sanchar Nigam Ltd (2006 (2) STR 161 (SC)). 41 . Gannon Dunkerley survived the 46th Constitutional Amendment in two respects. First with regard to the definition of sale for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Art. 366(29A) operate. By introducing separate categories of deemed sales , the meaning of the word goods was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery etc. would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. Courts must move with the times. But the 46th Amendment does not give a licence for example to assume that a transaction is a sale and then to look around for what could be the goods. The word goods has not been altered by the 46th Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by Article 366(29A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value would form part of the value of the taxable services that are provided. 23. The Hon ble Supreme Court in Commissioner of Service Tax Vs. M/s. Bhayana Builders [2018 (2) TMI 1325 = 2018 (10) G.S.T.L. 118 (S.C.)], while deciding the appeal filed by the Department against the aforesaid decision of the Tribunal, also explained the scope of Section 67 of the Act, both before and after the amendment, in the following words : The amount charged should be for for such service provided , Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words for such service provided the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider. ---- ---- --- 27. What follows from the aforesaid decisions is that consideration must flow from the service recipient to the service provider and should accrue to the benefit of the service provider and that the amount charged has necessarily to be a consideration for the taxable service provided under the Act. It should also be remembered that there is marked distinction between conditions to a contract and considerations for the contract . A service recipient may be required to fulfil certain conditions contained in the contract but that would not necessarily mean that this value would form part of the value of taxable services that are provided. 11. Learned Counsel also draw our attention to the judgment in the matter of M/s Bhai Mumbai Trust (2019 (31) GSTL 193 (Mum) 55. In the present case, royalty is paid towards damages of compensation of securing any future determination of compensation or damages for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on the decision of Hon ble High Court of Mumbai in the matter of Assistant Commissioner of Income Tax Vs. Asea Brown Boveri Ltd., reported in 2007 (110) TTJ (Mum) 502. Thus, there is no such separate services intended to be received and no consideration assigned for the indemnity clause as alleged by the Respondent to demand service tax. 13. Learned Counsel also drew our attention to the Income Tax returns filed by the Appellants and the assessment order issued by Deputy Commissioner of Income Tax assessing the income under Capital gain and other sources. Learned Counsel also drew our attention to the Circular No. 178/10/2022 dated 03.08.2022, wherein Ministry of Finance issued clarification regarding demand of GST against the service under agreeing to an obligation to refrain from act or tolerate an act or a situation or do an act and drew our attention to certain excerpts of such cases under service tax, GST demands. Relevant para of the Circular is produced below:- 7. There has to be express or implied agreement; oral or written, to do or abstain from doing something against payment of consideration for doing or abstaining from such act, for a taxable supply to exist. An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider, whether the impugned payments constitute consideration for another independent contract envisaging tolerating an act or situation or refraining from doing any act or a situation or simply doing an act. 15. Learned AR also relied on the decision of the Tribunal in the mater of M/s Godrej Consumer Products (2014 (305) E.L.T 61) 6.4 The next issue for consideration is whether the non-compete fee of Rs. 34 Crore paid by PGG to GSL can be included in the assessable value of toilet soaps manufactured by GSL. As per the Non-Competition Agreement dated 16.12.1992 among GSL, PGFE and PGG, at the request of PGFE and PGG, from the date of physical transfer of the business of marketing, distribution and the sale of Toilet Soaps to PGG, GSL shall not undertake as a commercial activity, anywhere in the specified territory, the distribution, marketing or sale of Toilet Soaps. The non-compete agreement, trademark agreement and the manufacturing agreement are an integral part of the JVA as can be seen from clauses 2.1, 2.6 and 9.1 (A). All these agreements are co-terminus with the JVA. One does not exist without the other. In view of this factual position, these agreements cannot be v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the all the appeals are common, all the appeals are taken up together for hearing. 19. Heard both sides and perused the records. 20. The Adjudication authority in the impugned order categorically admits that From the facts it is seen that M/s SILP entered into a Business Transfer Agreement (BTA) dated 02.03.2015 with Ola for transfer of personal holding of the shares . The Adjudicating authority further observed that; as per the BTA, M/s SILP were to transfer all the specified employees (most of the employees); all the customers of the company; and the existing hardware/infrastructure. Apart from that M/s SILP were also to fulfil the major conditions and obligations like (1) Seller Operation Warranties (2) Promoter Warranties (3) Performance Guarantee for two years (4) Non-Compete and Non-Solicitation Restrictions by the company, etc. From the above finding of the adjudication authority, it is an admitted fact that the business transfer carried out by the Appellant is related to an ongoing concern and as per the Mega Exemption vide Notification No. 25/2012-Service Tax dated 20.06.2012 Service by way of transfer of a going concern is fully exempted from all of the service tax lev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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