Relief to Star India: Taxable Service of Foreign entities cannot determine without Test of Taxation of Service Rules, says CESTAT [Read Order]

In a significant case of Star India, the Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the taxable services of foreign entities cannot determine without a test of taxation of Service Rules.

The assessee, M/s Star India Pvt Limited, challenged the fastening of levy of service tax of ₹ 52,37,68,283 under section 73 of Finance Act, 1994 for 2009-10, which pertains to the payment of ₹ 508,51,28,961 received by M/s Star L, Hongkong for the use of the visibly recognizable mark of the latter along with the other recognizable channel mark – and alleged to be a consideration for having received ‘intellectual property service’ from the overseas entity as culled out from the books of accounts of the appellant.

It would appear that the three foreign companies sought to be merged with the appellant and the scheme had received the approval of the High Court of Bombay on 18th February 2010 with 1st April 2009 being the appointed date as laid out in the proposed scheme.

It was contended that the payments made in the inter regnum by these foreign companies to the other Hongkong entity and reflected in the redrawn accounts of the appellant as required after the merger was sought to be taxed in show cause notice issued almost four years after the occurrence of the actual merger. 

A Coram of Mr C J Mathew, member (technical) Mr Ajay Sharma, member (judicial) observed that the impugned order has failed to identify the ‘taxable service’ that the erstwhile foreign entities had obtained from the foreign service provider without which the test of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 was not applied.

Further observed that the adjudicating authority has failed to consider the deemed demutualization of an amalgamated entity and amalgamating entities for the period beforethe effective merger and has superficially applied the appointed date conundrum to the ‘no brainer’, and default, articulation in section 66A of Finance Act, 1994 without taking the special provision of law to charge tax on specifically intended transactions.

The Tribunal set aside the impugned order which failed to comply with the mandate of section 66A of the Finance Act, 1994 and allowed the appeal. Shri V Sridharan, Senior Advocate with Shri Somesh Jain, Chartered Accountant appeared for the appellant and Shri Anand Kumar, Additional Commissioner appeared for the respondent.

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