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TMI Blog2014 (7) TMI 973X X X X Extracts X X X X X X X X Extracts X X X X ..... s and Handling Agreement were parts of such MOU. The preamble clauses regarding relationship and objectives of the main MOU read as under : "I PREAMBLE AASL, initially a shell company, started operations on 15-4-1996. It has four bases viz., Calcutta, Chennai, Delhi and Mumbai, and currently operates scheduled flights to over 40 stations, under the Alliance Air flag. AASL was reactivated as a part of Turnaround Strategy of Indian Airlines Limited, with the expectation that, the benefit derived from inducting trained pilots from the open market, would lead to an increase in the utilization of B- 737-200 aircraft, allow for gainful utilization of IAL personnel. It was also expected to release B-737-200 pilots of IAL, who have logged the requisite command time on the aircraft, for conversion on A 300s and A 320s, leading to improved utilization of the fleet at IAL. It was envisaged that AASL, though a separate company, would operate in complete synergy and co-operation with IAL. It was to make maximum use of the infrastructure and manpower of IAL, with a view to minimizing costs of operations of the two airlines. II RELATIONSHIP Based on the above decision, the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market without bringing them on the rolls of IAL. The matter under dispute is whether service tax was payable on the activities done by IAL under the said agreements. 4. Revenue was the view that the activities carried out by IAL as per the above agreements involved services taxable under Finance Act, 1994 and based on such understanding a Show Cause Notice dated 24-10-2008 was issued. After adjudication a demand of Rs. 15,70,14,081/- is confirmed against appellant along with interest and penalties. The amount confirmed is only in respect of the activities carried out under the third agreement mentioned earlier namely, "Ground Traffic, Other Support Services and Handling Agreement". The demand is confirmed under the head "Business Auxiliary Service" defined under Section 65 (19) of Finance Act, 1994 in matters of activities like Sales and Marketing Net Work Support, Revenue Collection and Credit Administration Support, Billing and Accounting Support etc. There is also a ground that IAL was providing service to the customers for and on behalf of AASL. The tax demanded is relatable to commissions received under clause 4 and clause 14 of the Ground Traffic, other Support Servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isis and hence pre-deposit of such demands will cause serious hardship to the appellant. 6. Opposing the prayer the Ld. AR for Revenue makes the following submissions : 6.1 The two entities namely IAL and AASL were constituted as separate companies under Companies Act, 1956. They themselves were considering the two entities to be different and IAL was charging from AASL for service rendered. If the two entities were the same there was no need for any agreement showing the services to be rendered, the terms and conditions for such services and remuneration to be paid to IAL. The agreements itself refers to services rendered and remuneration for it. It is very obvious that these were two separate entities and there was service provided by IAL and AASL. He pleads that the decision of the Apex court in the case of Renusagar Power Co. will not apply to this case because that was in the peculiar facts and circumstances of the case. It is not proper to lift corporate veil just for the asking for avoiding payment of taxes. 6.2 The ld. AR for Revenue also points out that IAL was collecting all the revenues from the passengers and the public who were using the services of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by IAL. 1.3 IAL will provide passenger reservation services for AASL on its reservation system or any other Computer Reservation System and will provide AASL with all Computer, IT and Communication support for the handling of AASL aircraft, passengers, excess baggage, mail and freight subject to Article 5. " "4. Ticketing and Traffic documents 4.1 For Documentation Through IAL own offices and its Agents (a) The traffic documents viz., passenger tickets, excess baggage tickets, Airways bills etc. of Indian Airlines Ltd. shall only be used for AASL flights. (b) Unless agreed otherwise, the traffic documents shall be honored between IAL and AASL without endorsement. (c) AASL shall be allowed to use IALs CVDs by its (AASL) booking offices. (d) AASL shall pay IAL the service charges @ 3% of the revenue earned or on such other rate/basis as may be mutually agreed for the following services/facilities :- (i) Ticket stock. (ii) Sales & Marketing Net work support. (iii) IT supports for MIS reports. (iv) Billing and accounting support (v) Administration of foreign exchange transactions as per para 14.4. (vi) Revenue coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty was payable on electricity other than from "own source of generation". UP State demanded such duty from Renusagar Power Co. because power was being supplied to another company, namely HINDALCO. The Court ruled that the demand is not maintainable because essentially both Renusgar Power Co. and HINDALCO were the same. While giving the decision the Court observed as under : "64. It is high time to reiterate that in the expanding of horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding. Here, indubitably, we are of the opinion that it is correct that Renusagar was brought into existence by Hindalco in order to fulfil the condition of industrial licence of Hindalco through production of aluminium. It is also manifest from the facts that the model of the setting up of power station through the agency of Renusagar was adopted by Hindalco to avoid complications in case of take over of the power station by the State or the Electrici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up together. Renusagar had in reality no separate and independent existence apart from and independent of Hindalco. 68. In the aforesaid view of the matter we are of the opinion that consumption of energy by Hindalco is clearly consumption by Hindalco from its own source of generation. Therefore, the rates of duty applicable to own source of generation have to be applied to such consumption, that is to say, I paisa per unit for the first two generating sets and nil rate in respect of 3rd and 4th generating sets. It is appropriate to refer that having regard to the conduct of the State the power-cuts matter and also the present proceedings the State should not be permitted to treat consumption of Renusagar's energy by Hindalco as anything other than different from consumption of energy by Hindalco from its own source of generation. We are, therefore, of the opinion that in the facts of this case the corporate veil must be lifted and Hindalco and Renusagar should be treated as one concern and if that is taken the consumption of energy by Hindalco must be regarded as consumption by Hindalco from its own source of generation. Inasmuch as the High Court upheld this contention of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Closing balance at the end of year-amount due from IAL to AASL -3067517291 11. Service charge is demanded on item 6 and 7 in the table above. Revenue argues that the items at S. no. 6 and 7 are debited to the account of AASL and hence received by IAL. The Appellants argue that after such accounting the dues from AASL has only increased and such increased dues has been finally written off. So it cannot be considered that the amounts against items 6 and 7 have been actually received. 12. The explanation in section 67 of Finance Act, 1994 defining value of taxable services reads as under with effect from 18-4-2006 : "Explanation. - For the purposes of this section, - (a) "consideration" includes any amount that is payable for the taxable services provided or to be provided; (b) "money" includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value; (c) "gross am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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