whether there can be demand of Service Tax in respect of the receipt towards the taxable services rendered earlier, in the business, taken over by the appellant under business transfer agreement.

PJ/Case Law/2014-15/2365

Case:-M/s ESSAR PROJECTS LTD Vs COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAJKOT

Citation:-2014-TIOL-1732-CESTAT-AHM

Brief facts:-The relevant facts that arises for considerations are: M/s Essar Construction (I) Ltd, 12, Swastik Society, Essar House, Jamnagar (hereinafter refereed to as the Noticee) are holder of Service Tax Registration under Section 69 of the Finance Act , 1994 (32 of 1994) (hereinafter referred to as the said act) under the category of Goods Transport Agency, Construction Service, Erection, Commissioning, and Installation Services, Business Auxiliary Services and Consulting Servicessince 04.09.2006 bearing Number AAACE2358JST007. During course of Audit of records of M/s Essar Projects Ltd for the period from April 2007 to March 2008 it has observed that M/s Essar Projects Ltd had sold the entire business pertaining to their Construction Division to the Noticee another group company w.e.f. 30.06.2006 as per Business Transfer Agreement. Since 30.06.2006 no business activity of any kind including providing taxable services was undertaken by M/s Essar Projects Ltd. However, financial transactions such as payment to the creditors pertaining to input and input services have been recorded in the books of account of the Noticee. M/s Essar Project Ltd has informed that they had not prepared or maintained any Books of Account after 30.06.2006 and the amount received in consideration of taxable services provided till 30.6.2006 by them had been reflected in the Books of Account maintained in favour of the Noticee as per terms and conditions of Business Transfer Agreement dated 30.06.2006 for having transferred the business along with its entire liability and assets.
The Noticee has not discharged the Service Tax liabilities on services provided on or after 30.06.2006. As per the agreement made on 30.06.2006 the Noticee continued to carry out the activities of Construction and liability for payment of Service Tax on such activities is on the Noticee. The Service Tax on service provided by the Noticee the period 01.07.2006 to 31.03.2008 is required to be paid by the Noticee, but they failed to pay the amount of such Service Tax. The Noticee has not paid the service tax at the rate, in manner and period prescribed, which was resulted in the non-payment of service tax amounting to Rs 9,96,14,733/- and thereby contravened the provisions of Section 68 of the Act, read with Rule 6 of the Service Tax Rules, 1994. The Noticee has also rendered himself liable to pay interest as provided under Section 75 of the said act. The Noticee has not obtained the service tax registration at the material time and thereby appears to have violated the provisions of Section 69 of the Finance 1994 read with Rule 4 of the Service Tax Rules, 1994. The Noticee has not assessed the tax due, property, on the services provided by them, as discussed in foregoing paras, and have also not filed any returns during the period from 30.06.2006 to 2007-08 and thereby appears to have violated the provision of Section 70 of the Finance, 1994 read with Rule 7 of the Service Tax Rules, 1994.
The lower authorities issued a show cause notice dtd 14.9.2012 demanding differential duty, interest thereof and also sought to impose penalties by invoking extended period. The appellant contested the show cause notice on merits as well as on limitations and also availed the personal hearing granted by the Adjudicating Authority. The Adjudicating Authority did not agree with the contentions raised by the appellant and confirmed the demands raised, alongwith interest and also imposed penalties.

Appellant’s contention:-Ld Counsel appearing for the appellant draws our attention to the OIO and the findings recorded by the Adjudicating Authority. It is his submission that the appellant had taken-over the running business of Essar Projects Ltd and it was made effective from 30th June 2006. He would also submit that the appellant had taken-over all the assets but the liabilities for earlier period, contracted as to be discharged by Essar Projects Ltd. It is his submission that even if any tax liability arises, it is the responsibility of Essar Projects Ltd and not the appellant. Alternatively, he would submit that on merits also, the entire amount of Service Tax liability as confirmed is already paid by Essar Projects Ltd as is evident from the audit report No. VI(a)/ST/JNN/FAR-A-29/2009 dtd 20.11.2009 which was conducted in the premises of Essar Projects Ltd, Vadinar. He would submit that by confirming the demand, interest and imposing penalty, Adjudicating Authority has erred in demanding the tax, twice over.

Respondent’s contention:-Ld. Dept. Representative reiterated the findings of the Adjudicating Authority.

Reasoning of judgment:-On perusal of the records, it transpires that the issue in the current appeal is to decide whether there can be demand of Service Tax in respect of the receipt towards the taxable services rendered earlier, in the business, taken over by the appellant under business transfer agreement.
Undisputed facts are appellant have taken over the running business of Essar projects Ltd under business transfer agreement and are eligible to receive the various outstanding of Essar Projects Ltd. One of the outstanding is regarding the consideration to the said Essar Projects Ltd, i.e., the debtors, were the clients to whom the services were rendered by Essar Projects Ltd. Subsequently, after taking over the business from 30th June, 2006 the appellant herein received the outstanding debts of Essar Projects Ltd by virtue of Business Transfer Agreement, this amount is being held by the Adjudicating Authority as an amount received for provision of taxable services and tax liability arise.
Without going into detailed discussions as proposed by the Ld counsel and opposed by the Ld Dept. Representative, they find that Essar Projects Ltd had undisputedly discharged the Service Tax liability which is confirmed against the appellant. This is evident from the fact that the audit team vide its final audit report dtd 20th November 2009 in Paragraph 2 recorded is as under:

As observed and verified from records that the entire business was closed by way of selling it to another group unit i.e., M/s Essar Construction (I) Ltd (ECIL) on 30.6.06, but the assessee had carried forward the amount of Rs 43,96,046/- as cenvat credit lying in balance on 30.06.06 instead complying with the Transfer of credit provisions made in the Rule 10 of the Cenvat Credit Rules, 2004. Further, the assessee informed that they had not prepared or maintained any Books of Account in favour of M/s Essar Projects Ltd (EPL) after 30.06.2006 ands the amount received in consideration of taxable service provided till 30.6.06 by them had been reflected in the Books of account maintained in favour of ECIL (the buyer) in terms and conditions of Business Transfer Agreement dated 15.06.06 for having transferred the said business alongwith its entire liability and assets. In view of the above, it appears that the assessee was neither liable to pay service tax amounting to Rs 9,96,14,733/- which they had paid during July06 to March 08 as the amount so recovered had been shown in the Books 0f Account of M/s ECIL., nor entitled to avail fresh cenvat credit or keeping any such cenvat credit lying in balance as it would stand lapse on the day of closing or transferring or selling entire business.
Therefore, Rs 43,96,046/- shown as opening balance on 01.07.06 in their Cenvat Credit account (Annexure A) and utilized by them against deemed liability of service tax was not admissible to them. Apropos amount of Rs 43,96,046/- requires to be recovered from them alongwith interest. (Emphasis supplied)
It can be seen from the unnumbered paragraph number three of reproduced final audit report, the audit officers have held that an amount of Rs 9,96,14,733/-has been paid by Essar Projects Ltd which they need not have to pay. It can be seen from the impugned order that the Adjudicating Authority has confirmed the exact amount to the last rupee. They find that this position of discharge of Service Tax liability by Essar Projects Ltd remains undisputed by the audit report given by the Dept official, not controverted by revenue. In their considered view, Service Tax liability which has already been discharged, cannot be again recovered from the appellant, who has taken-over the business from a particular day. This would amount to double taxation on the same service which is not contemplated in law.
In view of the foregoing findings, they set aside the impugned order as unsustainable and allow the appeal filed by the assessee. Impugned order is set aside and the appeal is allowed.

Decision:-Appeal allowed.

Comment:-The analogy of the case is that the service tax liability which has already been discharged can’t be again recovered from the appellant, who has taken over the business from a particular day. Same amount can’t be taxed twice. This would amount to double
taxation on the same service which is not contemplated in law. Hence, service tax can’t be recovered from the appellant.

Prepared by:- Monika Tak

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