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PRINCIPAL COMMISSIONER OF CENTRAL EXCISE Versus LARSEN AND TOUBRO LIMITED

2016 (7) TMI 1154 - GUJARAT HIGH COURT

Taxability of services provided by the SEZ unit to the DTA unit of the same assessee - principle of mutuality - Held that:- Identical issues raised by the same assessee for assessment year came up for consideration in [2016 (7) TMI 307 - GUJARAT HIGH COURT] The Tax Appeals of the Government were dismissed. - These Tax Appeals are also dismissed. - TAX APPEAL NO. 326 of 2016 TO TAX APPEAL NO. 331 of 2016 - Dated:- 21-7-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE APPELLANT : MS AVANI .....

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rsen & Toubro EPC unit is a single legal entity and, therefore, the respondent is not liable to pay service tax ? 2. Identical issues raised by the same assessee for assessment year came up for consideration in Tax Appeal Nos.42 and 43 of 2013. The Tax Appeals of the Government were dismissed. These Tax Appeals also, therefore, would meet with the same fate. For convenience, however, we may reproduce the relevant portion of the judgment as under : 8. Having heard learned counsel for the part .....

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ains to service provided to any person by any other person in relation to support services of business or commerce in any manner. Section 65(104c) defines support services of business or commerce as under : "Support Services of Business or Commerce" means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing dis .....

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le messages, secretarial services, internet and telecom facilities, pantry and security; 9. In terms of these provisions, therefore, in ordinary circumstances, it is not even the case of the respondent that the services provided by the SEZ unit not in the nature of support services of business or that for any other reason, they are not taxable services. 10. Section 2(za) of the Special Economic Zones Act, 2005 defines Special Economic Zone as to mean a Special Economic Zone notified under the pr .....

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nditions 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, countervai .....

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e Domestic Tariff Area would be chargeable to duties of customs including antidumping, countervailing and safeguard duties under the Customs Tariff Act, as leviable on such goods when imported. 12. In exercise of powers conferred under the Special Economic Zones Act, 2005, the Central Government has framed the Special Economic Zones Rules, 2006. Rule 19 thereof pertains to letter of approval to a unit and provides for various details that the letter of approval granted to a unit of manufacturing .....

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rovisions of Foreign Exchange Management (Establishment in India of branch or office or other place of business) Regulations, 2000 as amended from time to time. 13. Rule 22 of the Rules of 2006 pertains to terms and conditions for availing exemptions, drawbacks and concessions to every developer and entrepreneur for authorised operations. Subrules (2) and (3) read as under : (2) Every Unit and Developer shall maintain proper accounts, financial yearwise, and such accounts which should clearly in .....

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Provided that unit and developer shall maintain such records for a period of seven years from the end of relevant financial year: Provided further that the unit engaged in both trading and manufacturing activities shall maintain separate records for trading and manufacturing activities. (3) The Unit shall submit Annual Performance Reports in the Form I, to the Development Commissioner and the Development Commissioner shall place the same before the Approval Committee for consideration. (4) 01.0 .....

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omotion 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 taxe .....

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dumping, countervailing and safeguard duties under the Customs Tariff Act, as applicable, leviable on such goods when imported. In view of such special status and in order to enable a unit to claim such exemption, drawbacks and concession, under subrule(2) of Rule 22 of the Special Economic Zones Rules, 2006, it is provided that every unit and developer has to maintain proper accounts financial yearwise, clearly indicating in value terms the goods imported or procured from Domestic Tariff Area, .....

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Zone unit to be a separate legal entity. 15. All these statutory provisions indicate separate and artificially created independent existence of a SEZ unit of a company whether it has another unit situated in Domestic Tariff Area or not. In particular, Rule 19(7) of the Special Economic Zones Rules, 2006 while recognising that 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. It is because .....

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parate books of accounts, but it would not 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 .....

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uld 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 be treated separate from other units. 17. 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 ren .....

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ation, any excess or residue, from out of the funds collected, would not become the income of the club chargeable to tax. 18. The question of charging service tax however, needs to be looked from a slightly different angle. Section 66 of the Finance Act, 1994, as noted, provides for levy of taxes at the rate of prescribed percentage of the value of taxable services referred to in various clauses of subsection(105) of Section 65. For applicability of this charging section, therefore, what is need .....

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question of collecting service tax. No provision has been brought to our notice in the Finance Act, 1994 under which though the service provider has not charged any value for service, service tax thereon still can be levied on its deemed value, be it market value or fair value. It is a different matter altogether if the departmental authority disbelieves that though service was provided but no charge was collected and in such a case, the authority would have ample power to inquire into the matte .....

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