9911796707
TMI Blog2024 (11) TMI 1047X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Finance Act 1994 are sustainable in law. 1.1 The issue whether the sale/ transfer as a going concern by way of slump sale as defined under the Income Tax Act 1961, amounts to service, stands decided by this Hon'ble Tribunal in Gharda Chemicals Limited v CCE-2023 (4) TMI 439, in which this Hon'ble Tribunal has held that such slump sale does not amount to service. The said decision has been upheld by the Hon'ble Gujarat High Court reported as Principal Commissioner of CGST v Gharda Chemicals Limited- 2024 (3) TMI 131. 1.2 The Appellant is engaged in the business of software development and business process outsourcing. Prior to October 2014, a part of the said Business was dedicated to providing service to an entity called ZeroChaos LLC. On 30th October 2014, the Appellant entered into 'Business Transfer Agreement" with ZeroChaos Workforce Solutions Private Limited, for the sale and transfer of the said part of the Appellant's business which was dedicated to providing service to ZeroChaos, (therein referred to as ZC Business), as a going concern, on a Slump sale Basis, as defined under Section 2 (42C) of the Income Tax Act 1961. 1.3 As per Recital B and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgeable to income tax as Capital gains arising from transfer of Capital Asset. Since the transfer of the ZC Business by the Appellant was a Slump sale, the profits and gains from the same were assessed to income tax under the Income Tax Act 1961 as Capital gains arising from transfer of Capital Asset. Hereto annexed as Annexure A, are copies of ITR-6 and Income tax order for AY-2015- 16 from which it would be apparent that the profits and gains of Rs.7,57,56,885/- received in FY-2014-15 from the transfer of the ZC Business was assessed to income tax as Capital gains in AY 2015-16. 1.5 The Appellant bona fide hold the view that since the said ZC business was transferred as a going concern on Slump Sale basis, the same does not amount to "Service" under the Finance Act 1994 and consequently the Appellant did not pay any service tax on the consideration for the said Slump Sale. In the course of audit of the Appellant's records, the Service tax department noticed from the Profit & Loss Account and Balance Sheet for financial year 2014-15, that the Appellant had received consideration for transfer of Business as going concern on slump sale basis to ZeroChaos Workforce Solutions Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ah Advocate appearing on behalf of the appellant made the following submission: - Sale and transfer of an indentified part of Business as a going concern on Slump Sale Basis does not amount to service under Section 65B (44) of the Finance Act 1944 and is therefore not liable to service tax: 2.1 It would be evident from the various clauses of the "Business Transfer Agreement" dated 30th October 2014, as set out and referred to herein above, that the Appellant had sold and transferred an identified part of its business, which was dedicated to rendering service to ZeroChaos (ZC Business), as a going concern, by way of Slump sale, involving transfer of the Appellant's right, title and interest in and to all moveable Assets, intellectual property and other intangible assets, contracts, books and records, Goodwill, permits, identified employees and Employee benefit plans pertaining to the ZC Business. 2.2 As per Clause 3.1 of the Agreement, the consideration for sale and transfer of the ZC Business by way of slump sale as going concern, is stipulated as Rs.9,72,29,385/-, without assigning individual values to any of the identified assets. 2.3 As set out herein above, the said Slu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of goods there is no machinery provision to value the service portion. 2.8 In support of the above submissions, reliance is placed on the decision of the Hon'ble Supreme Court in the case of CCE v Larsen & Toubro Ltd - 2015 (39) STR 913 (SC), in which, in Paras 24 to 27, the Hon'ble Supreme Court has held that in absence of a specific provision in the Finance Act 1994 to remove the non-service elements (goods) from a composite contract involving service and transfer of goods, the service element in such a composite contract is not taxable as service. Such a provision was for the first time brought in by the Finance Act 2006 in respect of works contract as defined therein along with provisions being made in the Valuation Rules 2006 (Rule 2A) for segregating the "goods" component from "service" component. In absence of such machinery provision for segregating the "goods" component, no service tax can be levied on a composite contract which also involves transfer of goods. 2.9 As submitted herein above, the definition of Service includes only two specific services involving supply of goods viz. Works contract (as defined in Section 65B (54) and Service involving su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in CCE v Larsen & Toubro Ltd - 2015 (39) STR 913 (SC), in Para 44, that when the levy of service tax itself is non-existent, no question of any exemption would arise. It is settled law that charge/levy of tax cannot be created by an exemption Notification and if there is no charge/levy of tax under the Act, any purported exemption granted from levy of tax cannot result in creation of such levy. Any exemption granted on the erroneous presumption that tax is leviable, cannot result in levy of tax being created under the Act. Reliance is also placed on the decision of the Larger Bench of the Hon'ble Tribunal in the case of New Shorrock Mills v CCE-2006 (202) ELT 192, in which in Para 6, it is held that it is well settled that mention of an item in an exemption Notification is not determinative of its exciseability. Without prejudice to the aforesaid submissions, assuming while denying that there was levy of service tax on sale/transfer of business as going concern, the same was nevertheless exempted under Sr. No.37 of Notification no.25/2012- ST dated 20-6-2012: 2.13 Without prejudice to the aforesaid submissions, in any event, assuming while denying that sale/transfer of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to providing service to ZeroChaos was hived off and transferred as a going concern, independently from the rest of the Appellant's business. The transfer is therefore clearly of a going concern as an independent part (i.e. ZC Business) independently from the rest of the Appellants business. In any event, the demand for Service tax under the Proviso to Section 73 (1) and imposition of penalty under Section 78 of the Finance Act 1994 are unsustainable in law: 2.18 The Show cause Notice raised the demand for service tax under the proviso to Section 73 (1) of the Finance Act 1994 and the Order-in-Original confirmed the same under the proviso to Section 73 (1) and imposed penalty under Section 78 (1) of the said Act. It is submitted that the proviso to Section 73 (1) and Section 78 have no application in the present case since there was no fraud or collusion or willful mis-statement or suppression of facts or contravention of the Act or Rules with intent to evade payment of service tax. 2.19 It is submitted that it is settled law that for invoking the Proviso to Section 73 (1) and for imposition of penalty under Section 78 of the Finance Act 1994, there must be some positive and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RDINARY, PART II, SECTION 3, SUB- SECTION (1)) Government of India Ministry of Finance (Department of Revenue) Notification No. 25/2012-Service Tax New Delhi, the 20th June, 2012 G.S.R. 467(E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act. 1994 (32 of 1994) (hereinafter referred to as the said Act) and in supersession of notification number 12/2012- Service Tax, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 210 (E), dated the 17th March, 2012, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the following taxable services from the whole of the service tax leviable thereon under section 668 of the said Act, namely:- 1...................................................... 2......................................... 3........................................................ 37. Services by way of transfer of a going concern, as a whole or an independent part thereof;" From the above exemption entry, it is clear that services by way of transfer of the going concern as a whole or an in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
