By TIOL News Service

MUMBAI, MAY 23, 2018: THE appellants are having a division called M/s. Sahara India TV Network, Mumbai (SITV) which is separately registered under service Tax and are located in Mumbai. M/s. Aamby Valley Ltd. (AVL) was a unit of the appellant but has demerged from the appellant in the year 2008 as per the scheme of arrangement.

As per the scheme of arrangement, AVL was required to pay royalty for use of 'Sahara' brand @5% of annual turnover.

The 'annual turnover' is defined in para 2.4 in scheme of arrangement as follows: -

2.4 "Annual Turnover" shall mean all the revenue of the resulting company excluding the taxes and levies by whatever names called.

In pursuance of the same, the appellants have raised two invoices on AVL dt 31/03/2008 and 31/03/2009. These invoices clearly mentioned that the service tax will be discharged by SITV.

It is the case of the Revenue that royalty is recoverable not only on the income from operation but from miscellaneous income like sundry balance written back, liquidated damages, fines and penalty charges, foreign exchange difference, sale of scrap, transfer and cancellation fees etc.

Accordingly, a demand notice for recovery of service tax of Rs.1,53,31,456/- was issued and confirmed by the adjudicating authority.

The CCE, Pune held that the appellants have discharged the liability from another division and there is no provision in the Finance Act, 1994 and the Service Tax Rules, 1994 where the assessee can pay the service tax liability of another company even if they are from the same group. The Commissioner has also held that SITV being a separate service tax assessee cannot utilize CENVAT credit for payment of service tax liability of the appellant.

The appellant is before the CESTAT and submits that the impugned order is contrary to the decisions of the Tribunal on identical issue viz. Indian Oil Corporation Ltd - 2007-TIOL-994-CESTAT-KOL & Mahindra Logistics Ltd. Vs. Nagpur - 2012-TIOL-1919-CESTAT-MUM; that the service tax liability of Rs.1,36,94,903/- already paid by the division of the appellant should be accepted towards discharge of the tax liability that is confirmed under the impugned order. As for the balance demand of Rs.16,25,553/-, the appellant submits that the same has been raised on the miscellaneous income of AVL and on which income no royalty has been charged by the appellant by raising of invoice.

The AR defended the impugned order.

The Bench considered the submissions and observed -

++ We find that though SITV is separately registered with the Service Tax Department, but it is not a separate legal entity rather it is a division of the appellant who has discharged the service tax liability on behalf of the appellant and this does not tantamount to discharging the service tax liability of another company because the appellant and SITV form part of the same company and it is only a division of the appellant. [Mahindra Logistics Ltd. - 2012-TIOL-1919-CESTAT-MUM relied upon]

As regards the balance demand of Rs.16,25,553/-, the CESTAT observed -

"…The appellant in reply to the show-cause notice also has explained that the miscellaneous income accounted for during 2007-08 and 2008-09 mainly comprised of sundry balance written back, liquidated damages, fines and penalty charges, foreign exchange difference, sale of scrap, transfer and cancellation fees etc. But the original authority has not given any finding on this submission. Further, we find that the appellant had not raised any invoice for royalty on this amount. We also find that during the relevant period 2007-08 and 2008-09, the tax was payable only when the service provider has received the amount as provided in Rule 6 of Service Tax Rules, 1994. Since in this case, the appellant has not raised invoice for the royalty amount on AVL and accordingly has not received the amount, therefore, as per the provisions contained in Rule 6 of Service Tax Rules, 1994, the appellant is not liable to pay service tax on this amount."

The appeal was allowed by setting aside the impugned order.

In passing: Stay order reported as - 2014-TIOL-1880-CESTAT-MUM

(See 2018-TIOL-1594-CESTAT-MUM)