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TMI Blog2024 (11) TMI 1047X X X X Extracts X X X X X X X X Extracts X X X X ..... independent part of the appellant s overall business. Appellant before transfer of as going concern, they were providing a software solution of a product exclusively developed for the buyer of the business in the present case i.e. M/s ZeroChaos Workforce Solutions Private Limited. Therefore, the activity of software development, which was sold to M/s ZeroChaos was exclusively being done for ZeroChaos, therefore, it is clear that the software solution business which were earlier provided to ZeroChaos was absolutely independent, than their other software development business meant for other customers. Therefore, it is clear that the transfer of business as per the business agreement dated 30.10.2014 an exclusive part of the business of the appellant was out rightly transferred to ZeroChaos. The term used in the exemption entry that an independent part thereof indicates that there should not be any situation where even though a business is transferred but the same is not independent and consequently the same is still continued by the transferor. In the present case, the business related to ZeroChaos was exclusively being done for M/s. ZeroChaos and the entire business which was being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CGST v Gharda Chemicals Limited- 2024 (3) TMI 131. 1.2 The Appellant is engaged in the business of software development and business process outsourcing. Prior to October 2014, a part of the said Business was dedicated to providing service to an entity called ZeroChaos LLC. On 30th October 2014, the Appellant entered into 'Business Transfer Agreement with ZeroChaos Workforce Solutions Private Limited, for the sale and transfer of the said part of the Appellant's business which was dedicated to providing service to ZeroChaos, (therein referred to as ZC Business), as a going concern, on a Slump sale Basis, as defined under Section 2 (42C) of the Income Tax Act 1961. 1.3 As per Recital B and Clause 2.1 of the said Agreement, the Appellant agreed to sell, transfer, convey, assign by delivery, property in, title to the ZC Business to the Purchaser, as a going concern on a Slump Sale Basis. Slump sale is defined in the said Agreement to have the meaning assigned to it under Section 2(42C) of the Income Tax Act 1961. ZC Business is defined in the said Agreement as that part of the Appellant's business comprising Identified Assets, Identified liabilities and Identified Employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer of the ZC Business was assessed to income tax as Capital gains in AY 2015-16. 1.5 The Appellant bona fide hold the view that since the said ZC business was transferred as a going concern on Slump Sale basis, the same does not amount to Service under the Finance Act 1994 and consequently the Appellant did not pay any service tax on the consideration for the said Slump Sale. In the course of audit of the Appellant's records, the Service tax department noticed from the Profit Loss Account and Balance Sheet for financial year 2014-15, that the Appellant had received consideration for transfer of Business as going concern on slump sale basis to ZeroChaos Workforce Solutions Private Limited. Upon being asked by the department about payment of service tax in respect of the same, the Appellant by letters dated 14-3-2016 and 10- 8-2016 informed the department that the transaction being sale of business as going concern on Slump sale basis, does not amount to service and therefore service tax is not payable. 1.6 The service tax department, however, did not accept the Appellant's explanation and issued to the Appellant, Show Cause Notice dated 04.01.2017, wherein it was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, which was dedicated to rendering service to ZeroChaos (ZC Business), as a going concern, by way of Slump sale, involving transfer of the Appellant's right, title and interest in and to all moveable Assets, intellectual property and other intangible assets, contracts, books and records, Goodwill, permits, identified employees and Employee benefit plans pertaining to the ZC Business. 2.2 As per Clause 3.1 of the Agreement, the consideration for sale and transfer of the ZC Business by way of slump sale as going concern, is stipulated as Rs.9,72,29,385/-, without assigning individual values to any of the identified assets. 2.3 As set out herein above, the said Slump Sale of the ZC Business as a going concern has been assessed under Income tax as transfer of a Capital Asset attracting Capital gains tax. 2.4 It is submitted that the said sale and transfer of an identified part of business as a going concern on Slump sale basis, does not amount to Service as defined under Section 65B (44) of the Finance Act 1944. 2.5 A perusal of the definition of Service given in Section 65B (44) shows that it has following Three parts: a) Means part: The first part of the definition states that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act is not taxable as service. Such a provision was for the first time brought in by the Finance Act 2006 in respect of works contract as defined therein along with provisions being made in the Valuation Rules 2006 (Rule 2A) for segregating the goods component from service component. In absence of such machinery provision for segregating the goods component, no service tax can be levied on a composite contract which also involves transfer of goods. 2.9 As submitted herein above, the definition of Service includes only two specific services involving supply of goods viz. Works contract (as defined in Section 65B (54) and Service involving supply of food or other article of human consumption or drink. Also, the machinery provision for segregating the goods component exists only in the case of Works contract (under Rule 2A) and in the case of supply of food or drink in a restaurant or outdoor catering (Rule 2B). It therefore, follows that all other composite contracts involving transfer of goods, such as sale of business as going concern on slump sale basis, for which there is no machinery provision for segregating the goods component, can be made liable to service tax under the Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Larger Bench of the Hon'ble Tribunal in the case of New Shorrock Mills v CCE-2006 (202) ELT 192, in which in Para 6, it is held that it is well settled that mention of an item in an exemption Notification is not determinative of its exciseability. Without prejudice to the aforesaid submissions, assuming while denying that there was levy of service tax on sale/transfer of business as going concern, the same was nevertheless exempted under Sr. No.37 of Notification no.25/2012- ST dated 20-6-2012: 2.13 Without prejudice to the aforesaid submissions, in any event, assuming while denying that sale/transfer of part of business as going concern is a service liable to service tax under the Finance Act 1994, it is submitted that the Appellant was nevertheless eligible for the exemption under Sr. No.37 of Notification No.25/20212-ST dated 20-6-2012. 2.14 The said Sr. No.37 of Notification No.25/2012-ST grants exemption to Services by way of transfer of a going concern, as a whole or an independent part thereof. (emphasis supplied). 2.15 The Show Cause Notice accepts that the Appellant had transferred/sold part of their business as a going concern. It is also accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Finance Act 1994 and the Order-in-Original confirmed the same under the proviso to Section 73 (1) and imposed penalty under Section 78 (1) of the said Act. It is submitted that the proviso to Section 73 (1) and Section 78 have no application in the present case since there was no fraud or collusion or willful mis-statement or suppression of facts or contravention of the Act or Rules with intent to evade payment of service tax. 2.19 It is submitted that it is settled law that for invoking the Proviso to Section 73 (1) and for imposition of penalty under Section 78 of the Finance Act 1994, there must be some positive and deliberate act of concealment or clandestine activity. In the present case there is no such concealment or clandestine activity. The Appellant has maintained complete record of the transaction in question which is duly reflected in the Profit and Loss Account and Balance Sheet and it is on scrutiny of these very documents maintained by the Appellant in normal course of business that the audit department of service tax raised the issue whether the transaction of sale of business is liable to service tax. Further, the issue is one of legal interpretation and the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment, being satisfied that it is necessary in the public interest so to do, hereby exempts the following taxable services from the whole of the service tax leviable thereon under section 668 of the said Act, namely:- 1 2......................................... 3 .. 37. Services by way of transfer of a going concern, as a whole or an independent part thereof; From the above exemption entry, it is clear that services by way of transfer of the going concern as a whole or an independent part thereof is exempted. The Revenue, in the impugned order has denied the aforesaid exemption on the ground that in the present case the transfer of business is not an independent part of the appellant for the reason that the appellant is involved in the business of Software Development and the transfer of business is also nothing but a business of software development. Therefore, it is not an independent part of the appellant s overall business. 4.1 In this regard, we find that the appellant before transfer of as going concern, they were providing a software solution of a product exclusively developed for the buyer of the business in the present case i.e. M/s ZeroChaos Workforce Solutions Private L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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