TMI Blog2024 (2) TMI 964X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of M/s Universal Medicare [ 2019 (6) TMI 166 - CESTAT AHMEDABAD ], an agreement has to be interpreted as per the language and intention of the parties to such agreement. Once an ongoing concern is transferred along with assets and liabilities by paying huge amount, it is just obvious that if such noncompete clause is not present, the appellant could immediately start the same business. Hence such clause is normal in transfer of business and the condition of noncompete clause cannot be separated from the contract ended between the parties to bring the transaction under the ambit of service tax by denying the benefit of notification No. 25/2012-Service tax. Moreover, Ministry of Finance vide Circular No. 178/10/2022 dated 03.08.2022 clarified that under service tax, GST demand, unless payment has been made for an independent activity of tolerating an act under an independent arrangement entered into for such activity of tolerating an act, such payments will not constitute consideration and hence such activities do not constitute supply within the meaning of the Act. Since the entire service tax liability is set aside, interest and penalty imposed on Appellants are also se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the ongoing concern is towards the market value and not for the indemnity clause as alleged by the Respondent. Learned Counsel drew our attention to the clauses of the agreement relied by the Respondent for demanding service tax which is reproduced below:- In consideration of the purchase of the entire Business and the goodwill of the Business by the Buyer, the Seller and the Promoters shall not, for a period of 2 (two) years from the Closing Date, whether by themselves or through or on behalf of any other person, firm, company, Affiliate or organization or as a Director, shareholder, trustee, committee member, manager, office bearer or agent, any of their respective Family Members or in any manner whatsoever whether for profit or otherwise, within India or USA, China, as the case may be carried any business identical or similar to the business, nor be concern or interested in any business, i.e., identical or similar to the business. 5. Learned Counsel further submits that the terms of indemnifying the buyer is the routine condition for transferring any such running business concern and demand of service tax is illegal and unsustainable. Learned Counsel submits that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same definition. The second respect in which Gannon Dunkerley has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by Article 366(29A). Transactions which are mutant sales are limited to the clauses of Article 366(29A). All other transactions would have to qualify as sales within the meaning of Sales of Goods Act, 1930 for the purpose of levy of sales tax. 8. Ld. Counsel for the Appellant also drew our attention to the larger Bench decision in the matter of Commissioner of Central Tax, Chennai Vs. M/s Repco Home Finance (2020 (42) G.S.T.L 104 (Tri. Larger Bench). Relevant paragraph reproduced is below:- 21. It is, thus, clear that where service tax is chargeable on any taxable service with reference to its value, then such value shall be determined in the manner provided for in (i), (ii) or (iii) of subsection (1) of Section 67. What needs to be noted is that each of these refer to where the provision of service is for a consideration , whether it be in the form of money, or not wholly or partly consisting of money, or where it is not ascertainable. In either of the cases, there has to be a consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount charged by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined. 24. The aforesaid view was reiterated by the Supreme Court in Union of India vs. Intercontinental Consultants and Technocrafts [2018 (10) G.S.T.L. 401 (S.C.)] and it was observed that:- 23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various sub-clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the value of taxable services . Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily mean that this value would form part of the value of taxable services that are provided. 9. Learned Counsel also drew our attention to the judgment of M/s Bhai Mumbai Trust (2019 (31) GSTL 193 (Mum) where it is held that:- 55. In the present case, royalty is paid towards damages of compensation of securing any future determination of compensation or damages for a prima facie violation of the Plaintiff s legal right in the Suit Premises. The Prima facie finding is that the Defendant has no semblance of right to be in occupation of the Suit Premises. The permission granted to the Defendant to remain in possession subject to payment of royalty is an order to balance the equities of the case. The basis of this payment is the alleged illegal occupation or trespass by the Defendant. Such payment lacks the necessary quality of reciprocity to make it a supply . Hence no GST is payable. 10. Learned Counsel also drew our attention to the Circular No. 178/10/2022 dated 03.08.2022, where Ministry of Finance issued clarification regarding demand of GST against the service under agreeing to obligation to refrain from act of tolerate an act or a situation for do an act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Learned AR further submits that the value for the asset in the above transaction is negligible and entire amount involved in the transactions are towards the non-compete clause, which is the essence of the contract. Actual business transfer agreement is only about Rs. 60 lakhs and rest of Rs. 106 crores is towards the intangible asset. Learned AR also draw our attention to the provision of Section 65(B)(44) and Section 66(E)(e) of the Finance Act, 1994. Learned AR further submits that the essence of the agreement is the non-compete clause. Thus, the service is squarely falling under the provision of Declared services under Section 6(E)(e) of the Finance Act, 1994. Further submits that Declared service is a deeming fiction and similar such agreement have been held to be divisable/vivisected in BSNL Case. 12. Learned AR also relied on the decision of the Tribunal in the case of M /s Godrej Consumer Products (2014 (305) E.L.T 61) 6.4 The next issue for consideration is whether the non-compete fee of Rs. 34 crore paid by PGG to GSL can be included in the assessable value of toilet soaps manufactured by GSL. As per the Non-Competition Agreement dated 16-12-1992 among GSL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Sicon entered into a Business Transfer Agreement (BTA) dated 27.07.2015 with M/s Altrab Technology India Pvt Ltd for transfer their business activities in entirety The Adjudicating authority further observed that as per the BTA, M/s Sicon were to transfer all the specified employees (most of the employees); all the customers of the company; and the existing hardware/ infrastructure. Apart from that M/s Sicon were also to fulfil the major conditions and obligations like (1) Seller Operation Warranties (2) Promoter Warranties (3) Performance Guarantee for two years (4) Non-Compete and Non-Solicitation Restrictions by the company etc. From the above finding of the adjudication authority, it is an admitted fact that the business transfer carried out by the Appellant is related to an ongoing concern and as per the mega exemption vide Notification No. 25/2012-Service tax dated 20/06/2012 Service by way of transfer of a going concern is fully exempted from all of the service tax leviable thereon. From the evidence on record, no finding can be made that substantial portion of the agreement refers to the conditions/obligations to be followed M/s Sicon like non-compete clauses, perform ..... X X X X Extracts X X X X X X X X Extracts X X X X
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