Gujarat High CourtCommissioner vs Larsen And Toubro Ltd....Opponent(S) on 30 June, 2016Author:Akil KureshiBench:Akil Kureshi,A.J. ShastriO/TAXAP/42/2013                                                JUDGMENT




                    IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                                    TAX APPEAL NO. 42 of 2013
                                                With
                                    TAX APPEAL NO. 43 of 2013


         FOR APPROVAL AND SIGNATURE:



         HONOURABLE MR.JUSTICE AKIL KURESHI


         and
         HONOURABLE MR.JUSTICE A.J. SHASTRI
         ==========================================================

         1     Whether Reporters of Local Papers may be allowed
               to see the judgment ?

         2     To be referred to the Reporter or not ?

         3     Whether their Lordships wish to see the fair copy of
               the judgment ?

         4     Whether this case involves a substantial question of
               law as to the interpretation of the Constitution of
               India or any order made thereunder ?

         ==========================================================
                                COMMISSIONER....Appellant(s)
                                         Versus
                            LARSEN AND TOUBRO LTD....Opponent(s)
         ==========================================================
         Appearance:
         MR YN RAVANI, ADVOCATE for the Appellant(s) No. 1
         MR PK SAHU WITH MR NITIN K MEHTA, ADVOCATE for the Opponent(s)
         No. 1
         ==========================================================

             CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
                    and
                    HONOURABLE MR.JUSTICE A.J. SHASTRI



                                             Page 1 of 17

HC-NIC                                     Page 1 of 17     Created On Wed Jul 06 00:44:35 IST 2016
               O/TAXAP/42/2013                                                  JUDGMENT



                                Date : 30th June & 1st July 2016


                                      ORAL JUDGMENT(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)1. These   tax   appeals   have   been   filed   by   the   department 
            challenging   the   judgement   of   Customs,   Excise   &   Service 
            Tax Appellate Tribunal ("CESTAT" for short).2. Facts are noted from Tax Appeal No.42/2013. At the time 
            of admission  of appeal,  following  substantial  questions  of 
            law were framed :"(I)   Whether,   against   the   impugned   judgement   and   order 
            passed   by   the   Customs,   Excise   &   Service   Tax   Appellate 
            Tribunal,   present   appeal   before   this   Court   would   be 
            maintainable  or not and/or  whether  the appeal  would lie 
            before   the   Honble   Supreme   Court   as   provided   under 
            section 35(L) of the Act?(II) If the Question No.(I) is answered in affirmative and it is 
            held   that   the   appeal   would   be   maintainable   before   this 
            Court, in that case, to consider the following question :(i)   Whether   the   Honble   CESTAT   Bench,   Ahmedabad   has 
            erred in holding that for the purpose of levy of Service Tax, 
            the Respondent and L&T­EPC unit as a single legal entity 
            in   the   fact   and   circumstances   of   the   case,   and   hence 
            Respondent is not liable to pay Service Tax?"3. With regard to question no.1 pertaining to maintainability 
            of the appeals before the High Court, a Division Bench by a 
            detailed   judgement   dated   25.9.2014   disposed   of   thePage 2 of 17HC-NIC                                   Page 2 of 17     Created On Wed Jul 06 00:44:35 IST 2016
              O/TAXAP/42/2013                                               JUDGMENT




           question and held that the appeals  would be maintainable 
           before   the   High   Court   in   terms   ofsection   35Fof   the 
           Central   Excise   Act,   1994("the   Act"   for   short).   The   sole 
           surviving question therefore, is whether the Tribunal erred 
           in holding that the respondent was not liable to pay service 
           tax. This question arises in the following background :4. The   respondent   is   a   company   registered   under   theCompanies   Actand   has   various   units   established   in   the 
           country.   One   of   its     units   is   situated   in   the   Special 
           Economic   Zone("SEZ"   for   short).   This   Special   Economic 
           Zone   unit   had   carried   out   project   management   activities 
           including planning and controls, technical support, supply 
           chain   management.   contracts   management,   engineering 
           and design and back operations for finance and accounts 
           and   human   resources   functions   and   such   services   were 
           availed   by   units   of   assessee   situated   in   Domestic   Tariff 
           area("DTA" for short). These were in the nature of business 
           support   services   and   were   taxable   services   under   theFinance   Act,   1994.   The   adjudicating   authority   therefore, 
           issued   a   show   cause   notice   why   service   tax   on   such 
           services provided by the assessee should not be levied with 
           penalty and interest. The assessee opposed such proposal 
           mainly on the ground that one unit of a company cannot 
           provide service to another unit since for providing taxable 
           service,  it is necessary  that there  should  be two separate 
           entities.   The   assessee   pressed   in   service   the   principle   of 
           mutuality and contended that there cannot be any service 
           tax on such activities. The adjudicating authority however, 
           was   of   the   opinion   that   the   SEZ   and   DTA   units   of   the 
           assessee   company   were   separate   and   distinct   units.   HePage 3 of 17HC-NIC                               Page 3 of 17     Created On Wed Jul 06 00:44:35 IST 2016
            O/TAXAP/42/2013                                               JUDGMENT




         referred to rule 4 of  Service Tax Rules, 1994  which refers 
         to registration,  sub­rule(3A)  of which  provides  that  where 
         an assessee is providing taxable service of more than one 
         premises   or   offices   and   does   not   have   any   centralized 
         billing systems or centralized accounting systems,  he shall 
         make   separate   applications   for   registration   in   respect   of 
         each of such premises or offices. He also referred to sub­
         rule(7)   of   rule   19   of    the   Special   Economic   Zones   Rules, 
         2006,(here­in­after   referred   to   as   "the   Rules   of   2006") 
         which provides that if an enterprise is operating both as a 
         Domestic   Tariff   area   unit   as   well   as   a   Special   Economic 
         Zone   Unit,   it   shall   have   two   distinct   identities   with 
         separate  books of accounts,  but it shall not be necessary 
         for the Special Economic Zone unit to be a separate legal 
         entity. He recorded that assessee's SEZ and DTA units are 
         maintaining   separate   books   of   accounts,   are   separately 
         and   independently   registered   commercial   organisations, 
         have   separate   manpower,   distinct   identity,   separate 
         objectives  and expertise. SEZ unit had raised invoices for 
         covering   the   charges   for   providing   project   management 
         services  month­wise and such transactions were recorded 
         in their books. He referred to definition of term "person" insection   2(v)of   the     Special   Economic   Zones   Act,   2005 
         which   is   an   inclusive   definition   and   includes   within   its 
         sweep   an   individual,   a   Hindu   Undivided   Family,     a 
         cooperative   society,   a   company   or   even   a   proprietary 
         concern or an association of person or body of individuals, 
         a local authority and any agency office or branch owned or 
         controlled  by such individual,  HUF etc. He was therefore, 
         of the opinion that the respondent  assessee had not paid 
         service tax though liable. He also  held that the respondentPage 4 of 17HC-NIC                             Page 4 of 17     Created On Wed Jul 06 00:44:35 IST 2016
               O/TAXAP/42/2013                                                JUDGMENT




            assessee  had breached relevant provisions of the  Finance 
            Act,   1944.   He   therefore,   ordered   recovery   of   service   tax 
            with interest and also imposed penalties.5. This order was carried in appeal by the assessee before the 
            Tribunal. The Tribunal by the impugned judgement dated 
            22.10.2010  allowed  the appeal  and set aside the order of 
            the   adjudicating   authority.   The   Tribunal   held   that   SEZ 
            unit and DTA unit of the assessee cannot be considered as 
            separate   persons.   Merely   because   they   are   required   to 
            maintain separate books of account in terms of rule 19(7) 
            of the Special Economic Zones Rules, would not mean they 
            are separate entities. The Tribunal was of the opinion that 
            service   tax   would   be   levied   on   a   transaction   between   a 
            person   and   another   person   and   levy   of   service   tax 
            therefore,   would   require   a   transaction   between   two 
            persons. It is against this judgement that the department 
            has filed the present appeals.6. Learned   counsel   for   the   department   contended   that   the 
            Tribunal committed an error in interpreting the provisions 
            of   theFinance   Act,   1994.   SEZ   unit   was   distinct   and 
            separate entity and provided taxable service to DTA unit of 
            the   same   company.   Merely   because   both   the   units   were 
            under   the   same   company,   would   not   mean   that   the 
            services   provided   is   not   taxable.   He   submitted   that   the 
            principle   of   mutuality   would   not   apply   and   was   wrongly 
            applied   by   the   Tribunal.   He   invited   our   attention   to   rule 
            19(7) of the Special Economic Zone Rules to contend that 
            SEZ unit is a distinct and separate entity from other units 
            of the same company situated outside the said SEZ area.Page 5 of 17HC-NIC                                Page 5 of 17      Created On Wed Jul 06 00:44:35 IST 2016
               O/TAXAP/42/2013                                               JUDGMENTCounsel relied on decision of Division Bench of this Court 
            in   case   ofSintex   Industries   Ltd.   v.   Commissioner   of 
            Central   Excisereported   in   2013(287)   ELT   281   in   which 
            the   assessee   had   two   units   within   a   common   boundary 
            wall,   having   two   separate   central   excise   registration.   In 
            such   background,   the   Court   observed   that   the   assessee 
            having   obtained   separate   registration   was   estopped   from 
            contending   that   the   two   were   not     separate   factories, 
            simply   because   they   were   situated   within   a   common 
            boundary wall.7. On   the   other   hand,   learned   counsel   for   the   respondent 
            opposed   the   appeals   contending   that   the   assessee 
            company   conducted   various   promotional   activities   and 
            services for the purpose and benefit of the entire company. 
            Only   for   convenience,   the   expenses   of   services   were 
            apportioned to the SEZ unit. In any case, one unit of the 
            company   cannot   provide   any   taxable   service   to   another 
            unit. On the principle of mutuality therefore, no service tax 
            can be levied. Counsel relied on the following decisions :1)     In   case   of  Commr.   of   Cus.   &   C.   Ex.,   Meerut­I   v.Janardan Plywood Industries Ltd.  reported  in 2015(323) 
            ELT   46   (Uttarakhand),   in   which   it   was   found   that   the 
            company had two manufacturing units. In context of small 
            scale   industries   exemption,   it   was   held   that   the 
            manufacturer of both the units is a single legal entity and, 
            therefore,  aggregate  value  of  clearances  of both  the  units 
            must be taken into account for determining the eligibility of 
            SSI exemption.Page 6 of 17HC-NIC                                Page 6 of 17     Created On Wed Jul 06 00:44:35 IST 2016
            O/TAXAP/42/2013                                                JUDGMENT2)  In case of Sahney Steel and Press worksLimited and 
         another v. Commercial Tax Officer and othersreported 
         in   (1985)   4   Supreme   Court   Cases   173,   in   which   in   the 
         context   ofSales   Tax   Act,   it   was   noticed   that   the 
         manufacturer   had   sent   goods   to   the   branch   office   for 
         supplying to the buyer. It was observed that in such a case 
         the branch office merely acted as a conduit through which 
         the   goods   passed   on   their   way   to   the   buyer.   Both   the 
         registered   office   and   the   branch   office   are   offices   of   the 
         same company and that what in effect did take place was 
         that  the  company   from  its  registered  office  in  Hyderabad 
         took  the goods  to its  branch  office  outside  the  State  and 
         arranged to deliver them to the buyer.3)     In   case   ofUP   State   Cement   Corporation   Ltd.   v. 
         Commissioner of Sales Tax, UPreported in 1979 (43) STC 
         475 (ALL), it was noticed that UP Government  owned two 
         cement   factories.   One   supplied   cement   to   another   for 
         which it was also billed. In context of liability to pay sales 
         tax, it was observed that before a transaction can be taxed 
         and included in the turnover of a dealer, it has to be a sale. 
         In order  to  constitute  sales   within  the  definition  ofSales 
         Tax   Act,   there   must   be   two   different   persons   in   the 
         ordinary sense of the term 'person'.4) In case of  Commissioner of Income­tax v. Prabhukunj 
         Co­op Housing Society Ltd. reported in 377 ITR 13 (Guj), 
         in   which   the   principle   of   mutuality,   the   members   of   a 
         cooperative housing society and its members, was applied 
         in   the   context   of   a   part   of   the   surplus   retained   by   the 
         society from the sale of a plot by its member.Page 7 of 17HC-NIC                              Page 7 of 17     Created On Wed Jul 06 00:44:35 IST 2016
               O/TAXAP/42/2013                                                JUDGMENT8. Having   heard   learned   counsel   for   the   parties   and   having 
            perused   the   materials   on   record,   we   may   refer   to   the 
            relevant   statutory   provisions.Section   66of   the   Finance 
            Act,1994   pertains   to   charge   of   service   tax   and   provides 
            that there shall be levied a tax referred to as the service tax 
            at the rate of 12 per cent of the value of taxable services 
            referred   in     clauses   (a)   to   (zzzzw)   in   sub­section(105)   ofsection   65and   collected   in   such   manner   as   may   be 
            prescribed.Section   65(105)defines   various   taxable 
            services. Clause (zzzq)  thereof pertains to service provided 
            to any person  by any other person  in relation  to support 
            services of business or commerce in any manner.Section 
            65(104c)defines support services of business or commerce 
            as under :"Support   Services   of   Business   or   Commerce"  means 
            services provided in relation to business or commerce and 
            includes   evaluation   of   prospective   customers, 
            telemarketing,   processing   of   purchase   orders   and 
            fulfilment   services,   information   and   tracking   of   delivery 
            schedules,   managing   distribution   and   logistics,   customer 
            relationship   management   services,   accounting   and 
            processing   of   transactions,   [operational   or   administrative 
            assistance in any manner], formulation of customer service 
            and   pricing   policies,   infrastructural   support   services   and 
            other transaction processing.Explanation  ­For   the   purposes   of   this   clause,   the 
            expression   "infrastructural   support   services"   includes 
            providing office along with office utilities, lounge, reception 
            with competent personnel to handle messages, secretarial 
            services,   internet   and   telecom   facilities,   pantry   and 
            security;Page 8 of 17HC-NIC                                Page 8 of 17      Created On Wed Jul 06 00:44:35 IST 2016
                O/TAXAP/42/2013                                              JUDGMENT9. In   terms   of   these   provisions,   therefore,   in   ordinary 
            circumstances,   it   is   not   even   the   case   of   the   respondent 
            that   the   services   provided   by   the   SEZ   unit   not   in   the 
            nature of support services of business or that for any other 
            reason, they are not taxable services.10.Section   2(za)of   the   Special   Economic   Zones   Act, 
            2005 defines Special Economic Zone as to mean a Special 
            Economic Zone notified under the proviso to sub­section(4) 
            ofsection 3and sub­section(1) ofsection 4.Section 2(zc)defines unit to mean a unit set up by an entrepreneur in a 
            Special Economic Zone and would include an existing unit.Section 7of the Special Economic Zones Act, 2005 pertains 
            to exemption from taxes, duties or cess and provides that 
            any goods or services exported out of, or imported into, or 
            procured   from   the   Domestic   Tariff   Area   by   a   unit   in   a 
            Special   Economic   Zone   or   a   developer,   shall   subject   to 
            such   terms,   conditions   and   limitations   as   may   be 
            prescribed, be exempt from the payment of taxes, duties or 
            cess under all enactments specified in the First Schedule.Section 30of the Special Economic Zones Act, 2005 reads 
            as under :"Domestic   clearance   by   Units.--Subject   to   the   conditions 
            specified in the rules made by the Central Government in 
            this behalf:--(a) any goods removed from a Special Economic Zone to the 
            Domestic   Tariff   Area   shall   be   chargeable   to   duties   of 
            customs   including   anti­dumping,   countervailing   and 
            safeguard duties under theCustoms Tariff Act, 1975(51 of 
            1975),  where  applicable,  as leviable  on  such  goods  when 
            imported; andPage 9 of 17HC-NIC                                Page 9 of 17     Created On Wed Jul 06 00:44:35 IST 2016
                O/TAXAP/42/2013                                                JUDGMENT(b) the rate of duty and tariff valuation, if any, applicable to 
           goods removed from a Special  Economic  Zone shall be at 
           the rate and tariff valuation in force as on the date of such 
           removal, and where such date is not ascertainable, on the 
           date of payment of duty."11.        Undersection   30of   this   Act,   therefore,   any   goods 
           removed   from   a   Special   Economic   Zone   to   the   Domestic 
           Tariff   Area   would   be   chargeable   to   duties   of   customs 
           including   anti­dumping,   countervailing   and   safeguard 
           duties  under  theCustoms  Tariff  Act,  as leviable  on such 
           goods when imported.12.        In   exercise   of   powers   conferred   under   theSpecial 
           Economic   Zones   Act,   2005,   the   Central   Government   has 
           framed the Special  Economic Zones Rules, 2006. Rule 19 
           thereof pertains to letter of approval to a unit and provides 
           for various details that the letter of approval granted to a 
           unit of manufacturing  specified  project  in the  SEZ units. 
           Sub­rule(7) thereof reads as under :"(7) If an enterprise is operating both as a Domestic Tariff 
           Area unit as well as a Special Economic Zone Unit, it shall 
           have   two   distinct   identities   with   separate   books   of 
           accounts,   but   it   shall   not   be   necessary   for   the   Special 
           Economic Zone unit to be a separate legal entity:Provided   that   foreign   companies   can   also   set   up 
           manufacturing   units   as   their   branch   operations   in   the 
           Special Economic Zones in accordance with the provisions 
           of Foreign Exchange Management (Establishment in India 
           of branch or office or other place of business) Regulations, 
           2000 as amended from time to time."Page 10 of 17HC-NIC                                 Page 10 of 17     Created On Wed Jul 06 00:44:35 IST 2016
                O/TAXAP/42/2013                                             JUDGMENT13.        Rule 22 of the Rules of 2006 pertains to terms  and 
           conditions   for   availing   exemptions,   drawbacks   and 
           concessions   to   every   developer   and   entrepreneur   for 
           authorised   operations.   Sub­rules   (2)   and   (3)   read   as 
           under :"(2)   Every   Unit   and   Developer   shall   maintain   proper 
           accounts,   financial   yearwise,   and   such   accounts   which 
           should clearly indicate in value terms the goods imported 
           or   procured   from   Domestic   Tariff   Area,   consumption   or 
           utilization   of   goods,   production   of   goods,   including   by­
           products,   waste   or   scrap   or   remnants,   disposal   of   goods 
           manufactured   or   produced,   by   way   of   exports,   sales   or 
           supplies  in the domestic  tariff  area or transfer  to Special 
           Economic   Zone   or   Export   Oriented   Unit   or   Electronic 
           Hardware   Technology   Park   or   Software   Technology   Park 
           Units or Bio­technology Park Unit, as the case may be, and 
           balance in stock:Provided   that   unit   and   developer   shall   maintain   such 
           records for a period of seven years from the end of relevant 
           financial year:Provided further that the unit engaged in both trading and 
           manufacturing   activities   shall   maintain   separate   records 
           for trading and manufacturing activities.(3) The Unit shall submit Annual  Performance Reports in 
           the   Form   I,   to   the   Development   Commissioner   and   the 
           Development   Commissioner   shall   place   the   same   before 
           the Approval Committee for consideration.01.07.201614.        From these statutory provisions, it can be seen that 
           upon the support services of business being provided by aPage 11 of 17HC-NIC                              Page 11 of 17     Created On Wed Jul 06 00:44:35 IST 2016
            O/TAXAP/42/2013                                                 JUDGMENT




         service provider, service tax at the prescribed rates would 
         be levied. In view of materials on record, we have proceeded 
         on the  basis  that  the  respondent  company  SEZ  unit  had 
         provided such services to its DTA unit. We may notice that 
         theSpecial Economic  Zones Actwas enacted to provide for 
         the   establishment,   development   and   management   of   the 
         Special  Economic  Zones for the promotion of exports and 
         for matters connected therewith or incidental thereto.This 
         Actmakes   special   provisions   for   the   units   situated   in 
         Special   Economic   Zones   to   be   notified   and   established. 
         Undersection 7of the Special Economic Zones Act, 2005, 
         any goods or services exported out of, or imported into, or 
         procured   from   the   Domestic   Tariff   Area   by   a   unit   in   a 
         Special Economic Zone or a developer, would be subject to 
         such terms and conditions  as may be prescribed,  exempt 
         from   the   payment   of   taxes,   duties   or   cess   under   all 
         enactments  specified  in the  First  Schedule.  Thus,  for the 
         purpose   of   taxation   of   various   kinds   within   the   unit 
         situated  in the Special  Economic  Zones,  receive  a special 
         consideration.   It is because of these concessions granted 
         to   such   units   that   undersection   30of   the     Special 
         Economic Zones Act, 2005, it is provided that in cases of 
         goods   removed   from   a   Special   Economic   Zone   to   the 
         Domestic   Tariff   Area,   the   same   would   be   chargeable   to 
         duties  of  customs   including   anti­dumping,  countervailing 
         and   safeguard   duties   under   theCustoms   Tariff   Act,   as 
         applicable, leviable on such goods when imported. In view 
         of   such   special   status   and   in   order   to   enable   a   unit   to 
         claim such exemption, drawbacks and concession,   under 
         sub­rule(2)   of   Rule   22   of   the   Special   Economic   Zones 
         Rules,  2006,  it is provided  that  every  unit  and   developerPage 12 of 17HC-NIC                              Page 12 of 17     Created On Wed Jul 06 00:44:35 IST 2016
                O/TAXAP/42/2013                                               JUDGMENT




           has   to   maintain   proper   accounts   financial   year­wise, 
           clearly   indicating   in   value   terms   the   goods   imported   or 
           procured   from   Domestic   Tariff   Area,   consumption   or 
           utilization   of   goods,   production   of   goods,etc.   Under   sub­
           rule(3),  a unit would  have to submit Annual  Performance 
           Reports which shall have to be placed before the Approval 
           Committee  for consideration.  Like­wise,  under  sub­rule(7) 
           of Rule 19 it is provided that if an enterprise is operating 
           both   Domestic   Tariff   Area   unit   as   well   as   a   Special 
           Economic   Zone   Unit,   it   shall   have   two   distinct   identities 
           with   separate   books   of   accounts,   but   it   shall   not   be 
           necessary   for   the   Special   Economic   Zone   unit   to   be   a 
           separate legal entity.15.        All   these   statutory   provisions   indicate   separate   and 
           artificially created independent existence of a SEZ unit of a 
           company whether it has another unit situated in Domestic 
           Tariff Area or not. In particular, Rule 19(7) of the   Special 
           Economic   Zones   Rules,   2006   while   recognising   that   the 
           same   legal   entity   may   have   two   units,   one   in   SEZ   and 
           another in DTA, mandates that the two would have distinct 
           identities with separate books of accounts. It is because of 
           the   special   concessions   in   taxation,   including   duty 
           drawbacks and other exemptions that the SEZ unit has to 
           maintain   scrupulously   accounts   of   all   imports   and 
           procurements from  Domestic Tariff Area. It also has to pay 
           customs duty on goods cleared to Domestic Tariff areas as 
           if such goods were imported into India. Sub­rule(7) of Rule 
           19   clarifies   that   in   case   of   an   enterprise   which   has   unit 
           both   situated   in   SEZ   as   well   as   in   Domestic   Tariff   Area, 
           the two would  have distinct identities with separate booksPage 13 of 17HC-NIC                                Page 13 of 17     Created On Wed Jul 06 00:44:35 IST 2016
                O/TAXAP/42/2013                                               JUDGMENT




           of accounts, but it would not be necessary for the Special 
           Economic Zone unit to be a separate legal entity.16.        For   various   purposes,   thus   a   SEZ   unit   of   an 
           enterprise  which  also has an additional  unit  in Domestic 
           Tariff Area, therefore, has a distinct identity. Its accounts 
           are   separate,   its   accounting   would   be   separate.   This 
           artificial   creation   of   separate   accounting   of   a   unit   or   an 
           industry  of  a common  enterprise  or  a company,  is  not  a 
           new or unknown  phenomena.  In number  of cases,  whereIncome   Tax  Actprovides   profit  linked  incentives   such   as 
           deductions under sections 80HHC, 80­I, 80­IA, 80IB, etc., 
           the  industry  or  unit  engaged  in  such  eligible  business  is 
           treated separate and distinct for the purpose of accounting 
           so   that   deductions   of   the   assessee   out   of   its   eligible 
           business can be separately worked out. Similar principles 
           would apply in other special deductions also whether area 
           based or investment based. It may be that while assessing 
           the company, its total income would have to be computed 
           and the income of the assessee from such eligible business 
           after deductions,   would also form part of the total income. 
           Nevertheless, for the purpose of accounting, the particular 
           industry   eligible   for   deduction   would   be   treated   separate 
           from other units.17.        Under the circumstances, in view of statutory scheme 
           noticed   in   theFinance   Act,   1994andSpecial   Economic 
           Zones   Act,   2005,   the   contention   of   the   respondent 
           company   that   on   the   principle   of   mutuality,   the   services 
           rendered   by   its   SEZ   unit   to   a   Domestic   Tariff   Area   unit, 
           would not be chargeable to service tax, cannot be accepted.Page 14 of 17HC-NIC                                Page 14 of 17     Created On Wed Jul 06 00:44:35 IST 2016
                O/TAXAP/42/2013                                                 JUDGMENTIf   this   principle   is   applied,   the   very   artificial   creation   of 
           treating  a SEZ  unit  separate  and distinct  for accounting, 
           consumption   of   raw   materials,   production   and   clearance 
           purposes   would   shatter.   The   concept   of   mutuality   is 
           essentially   based   on   the   principle   that   where   certain 
           services   or   facilities   are   created   by   group   of   persons   for 
           themselves,   as   in   the   case   of   a   club   for   recreation,   any 
           excess  or residue,  from  out  of  the  funds  collected,  would 
           not become the income of the club chargeable to tax.18.        The question of charging service tax however, needs 
           to be looked  from a slightly  different  angle.Section  66of 
           the  Finance Act, 1994, as noted, provides for levy of taxes 
           at the rate of prescribed percentage of the value of taxable 
           services  referred  to in various  clauses  of sub­section(105) 
           of   Section   65.   For   applicability   of   this   charging   section, 
           therefore,   what   is   needed   is   to   ascertain   the   value   of 
           taxable  service.  In  other  words,  service  tax  can  be  levied 
           only   if   the   service   is   provided,   even   if   it   is   other­wise,   a 
           taxable   service,   carries   a   certain   value.   If   the   value   of 
           service   provided   is   nil,   there   would   be   no   occasion   for 
           charging the service tax. In essence, thus section 66 aims 
           at collecting service tax when a certain service is provided 
           for   a   value.   To   put   it   conversely,   when   the   service   is 
           provided but no value thereof is charged, there would be no 
           question   of   collecting   service   tax.   No   provision   has   been 
           brought   to   our   notice   in   theFinance   Act,   1994under 
           which   though   the   service   provider   has   not   charged   any 
           value for service, service tax thereon still can be levied on 
           its deemed value, be it market value or fair value. It is a 
           different   matter   altogether   if   the   departmental   authorityPage 15 of 17HC-NIC                                  Page 15 of 17     Created On Wed Jul 06 00:44:35 IST 2016
                O/TAXAP/42/2013                                                JUDGMENT




           disbelieves that though service was provided but no charge 
           was collected and in such a case, the authority would have 
           ample   power   to   inquire   into   the   matter   and   come   to 
           appropriate conclusion  on the basis of available materials 
           on   record.   However,   if   the   department   proceeds   on   the 
           premise that  a certain service though other­wise a taxable 
           service, the service provider did not collect any charge for 
           the   same   from   the   service   recipient,   in   our   opinion,   it 
           would   simply   not   be   possible   for   the   authority   to   collect 
           any service tax on such service.19.        We may notice that explanation to section 65 states 
           as under :"For the purposes of this section, taxable service includes 
           any   taxable   service   provided   or   to   be   provided   by   any 
           unincorporated   association   or   body   of   persons,   to   a 
           member  thereof,  for cash,  deferred  payment  or any  other 
           valuable consideration."20.        Thus the term taxable service has a direct relation to 
           the consideration either paid in cash or by way of deferred 
           payment   or   by   mentioning   of   any   other   valuable 
           consideration. This would reinforce our belief that when no 
           charge was collected for providing the service, there would 
           be   no   question   of   applying   a   rate   of   tax   on   the   value   of 
           such service.21.        In   this   context,   we   may   recall,   according   to   the 
           assessee,   providing  of  service   by  its   SEZ   unit  to  its   DTA 
           unit was merely  for the  purpose  of convenience  and SEZ 
           unit had not collected any charge for such service from itsPage 16 of 17HC-NIC                                 Page 16 of 17     Created On Wed Jul 06 00:44:35 IST 2016
                    O/TAXAP/42/2013                                               JUDGMENT




                 DTA  unit.   Though  the  Assessing   Officer  in  his   order  has 
                 made   a   brief   reference   to   the   SEZ   unit   receiving 
                 consideration for such service, we do not find any basis for 
                 such a conclusion.  In fact,  the case of assessee  all along 
                 has been that invoices were raised for such services merely 
                 for   the   purpose   of   convenience   and   in   fact,   since 
                 promotional   programmes   were   being   organised,   which 
                 would  benefit  the  entire  company  and  its  different  units, 
                 there was no question of charging a particular unit by SEZ 
                 unit   for   such   service   and   that   raising   of   invoices   was 
                 merely for the purpose of convenience. If that be so, in our 
                 opinion, no service tax could be levied not on the principle 
                 of   mutuality   but,   as   noted,   on   the   ground   that   service 
                 provided carried no actual value.22.        For   such   reasons,   while   therefore,   dismissing   the 
                 Revenue's appeal against the judgement of the Tribunal, on 
                 the grounds different from which appealed to the Tribunal, 
                 we answer the question clarifying that in the present case, 
                 no   service   tax   was   leviable   since   the   SEZ   unit   of 
                 respondent   assessee   had   not   charged   for   the   services 
                 provided to its DTA unit.23.        Tax appeals are dismissed.(AKIL KURESHI, J.)




                                                                             (A.J. SHASTRI, J.)
         raghuPage 17 of 17HC-NIC                                    Page 17 of 17     Created On Wed Jul 06 00:44:35 IST 2016