Whether one division of a parent company can discharge the service tax liability on its behalf?

PJ/CASE LAW/2015-16/2698

Case:- SAHARA INDIA COMMERCIAL CORPN. LTD. VERSUS COMMR. OF C. EX., PUNE-I

Citation:- 2015 (37) S.T.R. 311 (Tri. - Mumbai)

Brief Facts:-The appeal and stay petition are directed against order-in-original No. PUN-EXCUS-001-COM-044-13-14, dated 9-1-2014 passed by the Commissioner of Central Excise, Pune-I Commissionerate. Vide the impugned order, the learned adjudicating authority has confirmed a service tax demand of Rs. 1,53,31,456/- along with interest thereon and also imposing penalties under various provisions of the Finance Act, 1994 against M/s. Sahara India Commercial Corporation Ltd. Aggrieved with the same, the appellant is before Tribunal.

Appelants Contention-The learned consultant for the appellant makes the following submissions. M/s. Sahara India Commercial Corporation Ltd. has various divisions, namely Sahara TV Network, Aamby Valley Ltd. and so on. Subsequently, Aamby Valley Ltd. was demerged from the parent company and became a separate legal entity and vide a brand agreement between Sahara India Commercial Corporation Ltd. and Aamby Valley Ltd., the latter was permitted to use the brand name of former subject to payment of consideration. This usage of brand name falls under the category of ‘intellectual property service’. In the invoices issued for the receipt of consideration, it is stipulated that the payment has to be made by Aamby Valley Ltd. to Sahara India TV Network, Mumbai, who will discharge the service tax liability in respect of the consideration received. Accordingly, Sahara India TV Network, Mumbai, discharged service tax liability of Rs. 2,32,36,539/- on the consideration received for the usage of brand name. The department is disputing the payment by Sahara India TV Network and insists that the payment should have been made by Sahara India Commercial Corporation Ltd. only and not by Sahara India TV Network, Mumbai, since it is only a division of the former. It also appears from the notice that the dispute is not actually relating to payment by Sahara India Commercial Corporation Ltd. division but usage of Cenvat credit for payment of service tax by Sahara India TV Network. This Tribunal in the case of Mahindra Logistics Ltd.v. CC, E & ST, Nagpur reported in 2012-TIOL-1919-CESTAT-MUM, had held that separate divisions of a legal entity cannot be considered as separate legal entities and if the tax liability is discharged by the head office, the same would suffice. Following the ratio of the decision, so long as the service tax liability has been discharged by a division of Sahara India Commercial Corporation Ltd., the same would be a valid discharge of tax liability and no further liability would accrue. Accordingly he prays for grant of stay.

Respondents Contention-The learned Additional Commissioner appearing for the Revenue reiterates the findings of the lower authority. It is his submission that when Sahara India TV Network has discharged the service tax liability utilising the Cenvat credit, it is not correct discharge of duty liability.

Reasoning Of Judgement-The tribunal have carefully considered the submissions made by both sides. From the show cause notice, it appears that the charge against the appellant is that Sahara India TV Network which is a division of Sahara India Commercial Corporation Ltd., cannot discharge the tax liability on behalf of Sahara India Commercial Corporation Ltd. They do not find any provision in law which supports this proposition. So long as Sahara India TV Network is a part and parcel of Sahara India Commercial Corporation Ltd. and they have received consideration for services rendered by the parent company and discharge service liability, the same cannot be said to be a wrong discharge of tax liability or misutilisation of Cenvat credit. Thus the appellant has made out a prima facie case for waiver of the dues. Accordingly they grant unconditional waiver of the dues adjudged against the appellant and stay recovery thereof during the pendency of the appeal.

Decision-Stay granted

Comment-The crux of the case is that the division of a parent company is part and parcel of it and so discharge of the service tax liability on behalf of the parent company by the division is valid and proper. Hence, the stay application was allowed.

Prepared By-Neelam Jain

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PJ/CASE LAW/2015-16/2698

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