Jayaswal Neco Industries Ltd. Vs Commissioner of Customs (CESTAT Delhi)
The Hon’ble CESTAT, New Delhi, in Jayaswal Neco Industries Ltd. vs. Commissioner of Customs, Central Excise and Service Tax – Raipur [Service Tax Appeal No. 50893 of 2015 (dated, October 07, 2020)] held that, the assessee could not be held to be liable for discharging service tax liability of the Demerged Undertakings as it the service recipient and not service provider therefore, the confirmation of demand by the Commissioner is bad in law.
Facts:-
The Jayaswal Neco Industries Ltd. (“Appellant”), a manufacturer of excisable goods, is engaged in providing services of goods transport agency and business auxiliary service. During the relevant period from October 2007 to June, 2009, the Appellant had taken on lease the manufacturing plants of M/s Abhijeet Infrastructure Ltd. (“Abhijeet Ltd.”) and Corporate Ispat Alloys Ltd. (“Corporate Ltd.”). These plants were mentioned in the Central Excise registration of the Appellant. At these manufacturing plants, the Appellant manufactured DRI, Pig Iron and billets, which were sold to Abhijeet Ltd. and Corporate Ltd., who further sold these goods to independent buyers at the same price as they were sister concerns of the Appellant.
The Appellant claims to have shared the profits with Abhijeet Ltd. and Corporate Ltd. by way of fixed discounts and incentives in the form of additional discounts, paid on a monthly basis by way of debit notes issued by the, based on the quantity of goods sold by Abhijeet Ltd. and Corporate Ltd. met a certain sales target mutually agreed upon by the Appellant and the two concerns, which were recorded in the books of account of the Appellant. The Appellant settled the account of Abhijeet Ltd. and Corporate Ltd. after adjusting the aforesaid discounts/incentives.
It transpires that the plants of Abhijeet Ltd. and Corporate Ltd. were demerged from the legal entities of Abhijeet Ltd. and Corporate Ltd. and were merged into the Appellant w.e.f. April 1, 2008, in terms of an order dated November 13, 2009, passed by the Bombay High Court. The Appellant contends that Abhijeet Ltd. and Corporate Ltd. continued to exist and operate as separate legal entities and only their manufacturing unit plants based in Siltara were merged with the Appellant. During the course of audit of the books of account of the Appellant, for the period September 2006 to December 2008, it was noticed that Abhijeet Ltd. and Corporate Ltd. had received commission on account of sale of DRI and Pig Iron from the Appellant but had not paid service tax on such commission.
Accordingly, a Show Cause Notice (“SCN”), dated April 17, 2013 was issued to the Appellant proposing service tax on commission / discounts paid to Abhijeet Ltd. and Corporate Ltd., alleging that they acted as commission agents of the Appellant and received commission from the Appellant, which was taxable under “business auxiliary service”. The reason for demanding tax from the Appellant was that Abhijeet Ltd. and Corporate Ltd. had merged with the Appellant and, therefore, the Appellant was liable to pay the service tax that was payable by the Abhijeet Ltd. and Corporate Ltd. The Appellant filed a reply to the aforesaid SCN. The Commissioner, on being unsatisfied with the reply, by the order dated December 23, 2014, confirmed the demand on service tax under Section 73 of the Finance Act, 1994 (“Finance Act”), read with Sections 68 and 70 of the Finance Act with interest and penalties under Sections 77 and 78 of the Finance Act.
Issue:-
Whether the Appellant could be held to be liable for discharge service tax liability of the “Demerged Undertakings”?
Held:-
The Hon’ble CESTAT, New Delhi, in Service Tax Appeal No. 50893 of 2015 (dated, October 07, 2020 held as under:
