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2016 (10) TMI 134 - GUJARAT HIGH COURT

2016 (10) TMI 134 - GUJARAT HIGH COURT - TMI - SEZ unit - Service tax liability - principle of mutuality - business support services - activities carried out by SEZ unit of assessee and availed by units of assessee situated in DTA area - whether SEZ unit and DTA unit of the assessee should be considered as same or separate persons - Held that:- 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 .....

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provided for a value. To put it conversely, when the service is provided but no value thereof is charged, there would be no question of collecting service tax. 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 s .....

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e purpose of convenience and in fact, since promotional programmes were being organised, which would benefit the entire company and its different units, there was no question of charging a particular unit by SEZ unit for such service and that raising of invoices was merely for the purpose of convenience. If that be so, in our opinion, no service tax could be levied not on the principle of mutuality but, as noted, on the ground that service provided carried no actual value. - Tax Appeal No. 42 of .....

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following substantial questions of law were framed : (I) Whether, against the impugned judgement and order passed by the Customs, Excise & Service Tax Appellate Tribunal, present appeal before this Court would be maintainable or not and/or whether the appeal would lie before the Honble Supreme Court as provided under section 35(L) of the Act? (II) If the Question No.(I) is answered in affirmative and it is held that the appeal would be maintainable before this Court, in that case, to consid .....

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ppeals 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 sho .....

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icating authority therefore, issued a show cause notice why service tax on such services provided by the assessee should not be levied with penalty and interest. The assessee opposed such proposal mainly on the ground that one unit of a company cannot provide service to another unit since for providing taxable service, it is necessary that there should be two separate entities. The assessee pressed in service the principle of mutuality and contended that there cannot be any service tax on such a .....

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of each of such premises or offices. He also referred to sub rule( 7) of rule 19 of the Special Economic Zones Rules, 2006, (hereinafter referred to as the Rules of 2006 ) which provides that if an enterprise is operating both as a Domestic Tariff area unit as well as a Special Economic Zone Unit, it shall have two distinct identities with separate books of accounts, but it shall not be necessary for the Special Economic Zone unit to be a separate legal entity. He recorded that assessee's SE .....

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includes within its sweep an individual, a Hindu Undivided Family, a cooperative society, a company or even a proprietary concern or an association of person or body of individuals, a local authority and any agency office or branch owned or controlled by such individual, HUF etc. He was therefore, of the opinion that the respondent 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, o .....

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es 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 a .....

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area. Counsel relied on decision of Division Bench of this Court in case of Sintex Industries Ltd. v. Commissioner of Central Excise reported in 2013(287) ELT 281 in which the assessee had two units within a common boundary wall, having two separate central excise registration. In such background, the Court observed that the assessee having obtained separate registration was estopped from contending that the two were not separate factories, simply because they were situated within a common bound .....

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g decisions : 1) In case of Commr. of Cus. & C. Ex., MeerutI v. Janardan Plywood Industries Ltd. reported in 2015(323) ELT 46 (Uttarakhand), in which it was found that the company had two manufacturing units. In context of small scale industries exemption, it was held that the manufacturer of both the units is a single legal entity and, therefore, aggregate value of clearances of both the units must be taken into account for determining the eligibility of SSI exemption. 2) In case of Sahney .....

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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 tran .....

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s retained by the society from the sale of a plot by its member. 8. Having heard learned counsel for the parties and having perused the materials on record, we may refer to the relevant statutory provisions. Section 66 of the Finance Act,1994 pertains to charge of service tax and provides that there shall be levied a tax referred to as the service tax at the rate of 12 per cent of the value of taxable services referred in clauses (a) to (zzzzw) in sub section( 105) of section 65 and collected in .....

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essing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, [operational or administrative assistance in any manner], formulation of customer service and pricing policies, infrastructural support services and other transaction processing. Explanation For the purposes of this clause, the expression "infrastructural support services& .....

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Economic Zones Act, 2005 defines Special Economic Zone as to mean a Special Economic Zone notified under the proviso to subsection( 4) of section 3 and sub section( 1) of section 4. Section 2(zc) defines unit to mean a unit set up by an entrepreneur in a Special Economic Zone and would include an existing unit. Section 7 of the Special Economic Zones Act, 2005 pertains to exemption from taxes, duties or cess and provides that any goods or services exported out of, or imported into, or procured f .....

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omic 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 pa .....

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proval to a unit and provides for various details that the letter of approval granted to a unit of manufacturing specified project in the SEZ units. Sub rule( 7) thereof reads as under : (7) If an enterprise is operating both as a Domestic Tariff Area unit as well as a Special Economic Zone Unit, it shall have two distinct identities with separate books of accounts, but it shall not be necessary for the Special Economic Zone unit to be a separate legal entity: Provided that foreign companies can .....

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ry Unit and Developer shall maintain proper accounts, financial yearwise, and such accounts which should clearly indicate in value terms the goods imported or procured from Domestic Tariff Area, consumption or utilization of goods, production of goods, including byproducts, waste or scrap or remnants, disposal of goods manufactured or produced, by way of exports, sales or supplies in the domestic tariff area or transfer to Special Economic Zone or Export Oriented Unit or Electronic Hardware Tech .....

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ner and the Development Commissioner shall place the same before the Approval 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 wa .....

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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 the Special Economic Zones, receive a special consideration. It is because of these concessions granted to such units that under section 30 of the Special Economic Zones Act, 2005, it is provided that in cases of goods removed from a Spe .....

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s financial year wise, clearly indicating in value terms the goods imported or procured from Domestic Tariff Area, consumption or utilization of goods, production of goods, etc. Under sub rule( 3), a unit would have to submit Annual Performance Reports which shall have to be placed before the Approval Committee for consideration. Likewise, under sub rule( 7) of Rule 19 it is provided that if an enterprise is operating both Domestic Tariff Area unit as well as a Special Economic Zone Unit, it sha .....

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and another in DTA, mandates that the two would have distinct identities with separate books of accounts. It is because of the special concessions in taxation, including duty drawbacks and other exemptions that the SEZ unit has to maintain scrupulously accounts of all imports and procurements from Domestic Tariff Area. It also has to pay customs duty on goods cleared to Domestic Tariff areas as if such goods were imported into India. Subrule( 7) of Rule 19 clarifies that in case of an enterpris .....

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ting 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 .....

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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 accepted. If this principle is applied, the very artificial creation of treating a SEZ unit separate and distinct for accounting, consumption of raw materials, production and clearance purposes would shatter. The concept of mutuality is essentially based on the principle that .....

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in various clauses of subsection( 105) of Section 65. For applicability of this charging section, therefore, what is needed is to ascertain the value of taxable service. In other words, service tax can be levied only if the service is provided, even if it is otherwise, a taxable service, carries a certain value. If the value of service provided is nil, there would be no occasion for charging the service tax. In essence, thus section 66 aims at collecting service tax when a certain service is pro .....

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s provided but no charge was collected and in such a case, the authority would have ample power to inquire into the matter and come to appropriate conclusion on the basis of available materials on record. However, if the department proceeds on the premise 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 .....

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