TMI Blog2016 (7) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... the same legal entity may have two units, one in SEZ and another in DTA, mandates that the two would have distinct identities with separate books of accounts. For various purposes, thus a SEZ unit of an enterprise which also has an additional unit in Domestic Tariff Area, therefore, has a distinct identity. Its accounts are separate, its accounting would be separate. This artificial creation of separate accounting of a unit or an industry of a common enterprise or a company, is not a new or unknown phenomena. In number of cases, where Income Tax Act provides profit linked incentives such as deductions under sections 80HHC, 80I, 80IA, 80IB, etc., the industry or unit engaged in such eligible business is treated separate and distinct for the purpose of accounting so that deductions of the assessee out of its eligible business can be separately worked out. Under the circumstances, in view of statutory scheme noticed in the Finance Act, 1994 and Special Economic Zones Act, 2005, the contention of the respondent company that on the principle of mutuality, the services rendered by its SEZ unit to a Domestic Tariff Area unit, would not be chargeable to service tax, cannot be accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, and hence Respondent is not liable to pay Service Tax? 3. With regard to question no.1 pertaining to maintainability of the appeals before the High Court, a Division Bench by a detailed judgement dated 25.9.2014 disposed of the question and held that the appeals would be maintainable before the High Court in terms of section 35F of the Central Excise Act, 1994( the Act for short). The sole surviving question therefore, is whether the Tribunal erred in holding that the respondent was not liable to pay service tax. This question arises in the following background : 4. The respondent is a company registered under the Companies Act and has various units established in the country. One of its units is situated in the Special Economic Zone( SEZ for short). This Special Economic Zone unit had carried out project management activities including planning and controls, technical support, supply chain management. contracts management, engineering and design and back operations for finance and accounts and human resources functions and such services were availed by units of assessee situated in Domestic Tariff area( DTA for short). These were in the nature of business support ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent assessee had not paid service tax though liable. He also held that the respondent assessee had breached relevant provisions of the Finance Act, 1944. He therefore, ordered recovery of service tax with interest and also imposed penalties. 5. This order was carried in appeal by the assessee before the Tribunal. The Tribunal by the impugned judgement dated 22.10.2010 allowed the appeal and set aside the order of the adjudicating authority. The Tribunal held that SEZ unit and DTA unit of the assessee cannot be considered as separate persons. Merely because they are required to maintain separate books of account in terms of rule 19(7) of the Special Economic Zones Rules, would not mean they are separate entities. The Tribunal was of the opinion that service tax would be levied on a transaction between a person and another person and levy of service tax therefore, would require a transaction between two persons. It is against this judgement that the department has filed the present appeals. 6. Learned counsel for the department contended that the Tribunal committed an error in interpreting the provisions of the Finance Act, 1994. SEZ unit was distinct and separate entity and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered office and the branch office are offices of the same company and that what in effect did take place was that the company from its registered office in Hyderabad took the goods to its branch office outside the State and arranged to deliver them to the buyer. 3) In case of UP State Cement Corporation Ltd. v. Commissioner of Sales Tax, UP reported in 1979 (43) STC 475 (ALL), it was noticed that UP Government owned two cement factories. One supplied cement to another for which it was also billed. In context of liability to pay sales tax, it was observed that before a transaction can be taxed and included in the turnover of a dealer, it has to be a sale. In order to constitute sales within the definition of Sales Tax Act, there must be two different persons in the ordinary sense of the term 'person'. 4) In case of Commissioner of Incometax v. Prabhukunj Coop Housing Society Ltd. reported in 377 ITR 13 (Guj), in which the principle of mutuality, the members of a cooperative housing society and its members, was applied in the context of a part of the surplus retained by the society from the sale of a plot by its member. 8. Having heard learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estic Tariff Area by a unit in a Special Economic Zone or a developer, shall subject to such terms, conditions and limitations as may be prescribed, be exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule. Section 30 of the Special Economic Zones Act, 2005 reads as under : Domestic clearance by Units.-Subject to the conditions specified in the rules made by the Central Government in this behalf:- (a) any goods removed from a Special Economic Zone to the Domestic Tariff Area shall be chargeable to duties of customs including antidumping, countervailing and safeguard duties under the Customs Tariff Act, 1975 (51 of 1975), where applicable, as leviable on such goods when imported; and (b) the rate of duty and tariff valuation, if any, applicable to goods removed from a Special Economic Zone shall be at the rate and tariff valuation in force as on the date of such removal, and where such date is not ascertainable, on the date of payment of duty. 11. Under section 30 of this Act, therefore, any goods removed from a Special Economic Zone to the Domestic Tariff Area would be chargeable to duties of customs including antidumpin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proval Committee for consideration. 01.07.2016 14. From these statutory provisions, it can be seen that upon the support services of business being provided by a service provider, service tax at the prescribed rates would be levied. In view of materials on record, we have proceeded on the basis that the respondent company SEZ unit had provided such services to its DTA unit. We may notice that the Special Economic Zones Act was enacted to provide for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto. This Act makes special provisions for the units situated in Special Economic Zones to be notified and established. Under section 7 of the Special Economic Zones Act, 2005, any goods or services exported out of, or imported into, or procured from the Domestic Tariff Area by a unit in a Special Economic Zone or a developer, would be subject to such terms and conditions as may be prescribed, exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule. Thus, for the purpose of taxation of various kinds within the unit situated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be necessary for the Special Economic Zone unit to be a separate legal entity. 16. For various purposes, thus a SEZ unit of an enterprise which also has an additional unit in Domestic Tariff Area, therefore, has a distinct identity. Its accounts are separate, its accounting would be separate. This artificial creation of separate accounting of a unit or an industry of a common enterprise or a company, is not a new or unknown phenomena. In number of cases, where Income Tax Act provides profit linked incentives such as deductions under sections 80HHC, 80I, 80IA, 80IB, etc., the industry or unit engaged in such eligible business is treated separate and distinct for the purpose of accounting so that deductions of the assessee out of its eligible business can be separately worked out. Similar principles would apply in other special deductions also whether area based or investment based. It may be that while assessing the company, its total income would have to be computed and the income of the assessee from such eligible business after deductions, would also form part of the total income. Nevertheless, for the purpose of accounting, the particular industry eligible for deduction would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that a certain service though otherwise a taxable service, the service provider did not collect any charge for the same from the service recipient, in our opinion, it would simply not be possible for the authority to collect any service tax on such service. 19. We may notice that explanation to section 65 states as under : For the purposes of this section, taxable service includes any taxable service provided or to be provided by any unincorporated association or body of persons, to a member thereof, for cash, deferred payment or any other valuable consideration. 20. Thus the term taxable service has a direct relation to the consideration either paid in cash or by way of deferred payment or by mentioning of any other valuable consideration. This would reinforce our belief that when no charge was collected for providing the service, there would be no question of applying a rate of tax on the value of such service. 21. In this context, we may recall, according to the assessee, providing of service by its SEZ unit to its DTA unit was merely for the purpose of convenience and SEZ unit had not collected any charge for such service from its DTA unit. Though the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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