TMI BlogBusiness Transfer Agreements having a non-compete clause cannot be classified as Declared Service for demanding Service TaxX X X X Extracts X X X X X X X X Extracts X X X X ..... Business Transfer Agreements having a non-compete clause cannot be classified as Declared Service for demanding Service Tax - By: - CA Bimal Jain - Service Tax - Dated:- 23-2-2024 - The Hon ble CESTAT, Bangalore, in the case of MR. NAVEEN CHAVA, MR. SRIKAR REDDY VEMPATI, SICON DESIGN TECHNOLOGIES PVT. LTD. VERSUS COMMISSIONER OF CENTRAL TAX, BENGALURU [2024 (2) TMI 964 - CESTAT BANGLORE] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that in the current case, no evidence establishes that a substantial portion of the agreement refers to the obligations that are to be followed by the Appellants. Further, if any payment has been made for an independent activity of tolerating an act under an independent arrangement, such payments will not constitute consideration. Therefore, business transfer agreements ( BTA ) enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Appellants having a non-compete clause cannot be classified as Declared Service under Section 66E (e) of the Finance Act, 1994 ( the Finance Act ) for demanding Service Tax. Facts: Naveen Chava and Others ( the Appellants ) were engaged in designing integrated sheets/circuits for the telecom industries. They entered into a BTA of a going concern as a whole wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h M/s. Altran Technologies India Pvt. Ltd. ( M/s. Altran ) on July 27, 2020. They agreed to sell, transfer, grant, assign, and deliver to M/s. Altran all their rights, title, and interests with respect to the business as a going concern, free and clear from all encumbrances on a slump sale basis as defined in Section 2(42C) of the Income Tax Act, 1961 ( the IT Act ) . The Director Genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of Goods and Service Tax Intelligence ( the DGGI ) investigated and alleged that the activities of agreeing to refrain from certain activities for 2 years were required to be treated as a Declared Service. Thereafter, a Show Cause Notice dated December 19, 2019 ( the Impugned SCN ) was issued to the Appellants wherein it was alleged that the services provided by the Appellants to M/s. Altran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fall under the category of Service under Section 66E (e) of the Finance Act . Thereafter, the Adjudication Authority ( the Respondent ) passed an Order dated August 28, 2020 ( the Impugned Order ) and confirmed the demand of Service Tax and penalty on the Appellants. Hence, aggrieved by the Impugned Order, the present appeal was filed by the Appellants. Issue: Whether the BT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A entered by the Appellant had a non-compete clause can be classified as Declared Service for demanding Service Tax ? Held: The Hon ble CESTAT, Bangalore in MR. NAVEEN CHAVA, MR. SRIKAR REDDY VEMPATI, SICON DESIGN TECHNOLOGIES PVT. LTD. VERSUS COMMISSIONER OF CENTRAL TAX, BENGALURU [2024 (2) TMI 964 - CESTAT BANGLORE] held as under: Observed that, as per the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts, the business transfers carried out by the Appellants were related to an ongoing concern and as per the Notification No. 25/2012-Service Tax dated June 20, 2012 ( the Exemption Notification ), service by way of transfer of a going concern is fully exempt from all of the Service Tax leviable thereon. In the current case, no evidence establishes that a substantial portion of the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t refers to the conditions/obligations to be followed by the Appellants, like non-compete clauses, performance guarantee for two years, etc., for which they have received consideration of INR 1,06,79,67,816/- as held by the Respondent. Opined that, non-compete clauses are normal in transfer of business and their condition cannot be separated from the contract that ended between the parties t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o bring the transaction under the ambit of Service Tax by denying the benefit of the Exemption Notification. Relied on, ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES LTD. VERSUS DIRECTOR OF INCOME-TAX - 2007 (1) TMI 91 - SUPREME COURT wherein it was held that in construing a contract, the terms and conditions thereof are to be read as a whole. A contract must be construed keeping in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the intention of the parties. No doubt, the applicability of the tax laws would depend upon the nature of the contract, but the same should not be construed keeping in view the tax provisions. Relied on, M/S UNIVERSAL MEDICARE PVT. LTD. VERSUS C.C.E. S.T., DAMAN - 2019 (6) TMI 166 - CESTAT AHMEDABAD wherein the Tribunal held that an agreement has to be interpreted as per the languag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and intention of the parties to such agreement. Once an ongoing concern is transferred along with assets and liabilities by paying a huge amount, it is obvious that if such a non-compete clause is absent, the Appellants could immediately start the same business. Held that, the CBIC vide Circular No. 178/10/2022 dated August 03, 2022 clarified that under Service Tax, the GST demand unl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess 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. Hence, such activities do not constitute supply . Therefore, the appeal was allowed, and the Impugned Orders were set aside. (Author can be reached at info@a2ztaxcorp.c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om ) - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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