No Service Tax on Remuneration received by Partner of a Firm: CESTAT [Read Order]

Service Tax - Remuneration - Partner of a Firm - CESTAT - Taxscan

In a significant ruling, the Ahmedabad bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT)has held that the remuneration received by the partners of a partnership firm as per the obligation of the partnership deed, would be treated as a share of profit and not as service under service tax law. The decision would be a major relief to the individuals operating and managing firms.

The appellant, running a partnership firm, agreed to provide certain services to firm partnership M/s Zydus Healthcare related to promotion and marketing of firm‘s product and various related services as per the partnership deed and received remuneration for the same. He also paid service tax in respect of the same. Later, the appellant came to know that the services provided by a partner to a partnership firm does not fall under the ambit of services as per Finance Act, 1994, they had filed for refund claims. However, the authorities rejected the claim.

While allowing the appeal, the Tribunal comprising Judicial Member Ramesh Nair and Technical Member Raju observed that from the above terms of the partnership deed, the appellant in its capacity as a partner of the partnership firm was obliged to carry out certain activities such as distribution of goods manufactured, marketing of the goods manufactured by the partnership firm, functioning as consignee and sales agent of the partnership firm, etc.

“In terms of the above conditions, the appellant has carried out the activities which were assigned to the appellant by the partnership firm in the capacity of the partner. These activities were not undertaken pursuant to a separate and independent contract for the provision of services between the appellant of the partnership firm. Therefore, the activities carried out by the appellant for its partnership firm as part of its duties as a partner. In this arrangement, it cannot be said that the partner is a service provider and the partnership firm is the service recipient. It is also observed that the remuneration received by the appellant from the partnership firm has been accounted for as -Remuneration received from the partnership firm. Any activity can be brought under the Service tax ambit under the Finance Act, the important aspect is that there should be the existence of service provider and the service recipient and the service provider and the service recipient should be two different persons,” the Tribunal said.

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