ORDER
T.K. Jayaraman, Member (T)
1. These appeals have been filed against the Order-in-original (Revenue) No. 01/2004-Adjn-S.Tax.dated 17.06.2004 and Order-in-Appeal No. 10/2004(T) ST. dated 15.6.2004, passed by the Commissioner of Customs and Central Excise, Tirupati and the Commissioner of Customs and Central Excise (Appeals), Guntur respectively. Since the issue involved is common in these appeals, they are taken up together for the disposal as per law. The appellants manufactured Cotton yarn, Ployester yarn and blended yarn of cotton which are excisable. The Corporate Office of the appellant is in Coimbatore. They have Spinning unit in Kerala and Andhra Pradesh states. Further they have doubling units in Kerala, Tamilnadu and Andhra Pradesh. They have dyeing units in Karnataka, Tamilnadu and Andhra Pradesh. A weaving unit is in Tamilnadu. The above units of the appellants, M/s Precot Mills Ltd., Coimbatore are independent units and are separate profit centers. The Corporate Office of the Company in order to evaluate the performance of each unit, raise inter unit debit notes to account for the cost of goods and services supplied by one unit to the other. The accounts of the various units of M/s Precot Mills Ltd., Coimbatore is integrated and consolidated and single profit and lose/balance sheet is prepared annually for necessary statutory compliance under the Companies Act/Income Tax Act, etc. The issue involved is whether service tax is leviable in respect of the services rendered to their Dyeing Unit for the period from Jan 1999 to March 2000 for which inter unit debit note for Rs. 1,51,21,2947-was raised. The Addl. Commissioner of Central Excise confirmed a demand of Rs. 7,56,065/- on technical/administrative services rendered to their own Dyeing Unit. The Commissioner (Appeals), Guntur in the impugned order dated 15.06.2004 confirmed the demands. In respect of the period from April 2000 to March 2001, the Jurisdictional Asst. Commissioner of Central Excise decided that no service tax would be payable as there is no relationship of service provider and client in the transaction and dropped the proposal for demand of service tax. However, the Jurisdictional Commissioner of Central Excise, Tirupati in his Review Order dated 17.6.2004, set aside the order of the Asst Commissioner and passed the order confirming the demand of service tax amounting to Rs. 2,71,846/-. The Appellant has strongly challenged the impugned orders.
2. Shri Viswanath, the learned Chartered Accountant appeared for the appellants and Shri KS Bhat, the learned SDR appeared for the Revenue.
3. The learned Chartered Accountant urged the following points
(i) As per Section 65 of the Finance Act, 1994, taxable service means, any service provided to a client by a Management Consultant in connection with the management of any organization in any manner. Hence, it is necessary that the client relationship should be established between the service provider and the service receiver before proposing levy of service tax. In the appellants case, client relationship is not established since they belong to same Company, namely Precot Mills Ltd.
(ii) One cannot be a service provider as well as client when the service receiver and the service provider are belong to the same Company.
(iii)The inter unit debit notes raised by the appellants on their own Dyeing Unit got eliminated at the time of consolidation of the accounts and hence there is no receipt in the Books of Accounts of the Company towards the value of such taxable services. In the absence of such receipt toward the value of taxable services, the levy is unwarranted as per provisions contained in Rule 6 (1) of Service Tax Rules.
(iv) Payment of service is mandatory only on receipt of value of the taxable service which is absent in the present case.
(v) The analogy drawn by the Commissioner of Central Excise, Tirupati in the Order dated 17.6.2004 of excise duty that is payable on the clearance of goods even though there will be no flow of funds has no relevance for levy of service tax in as much as the service tax is leviable only when the services are rendered by the service provider to a client which is absent in the appellant’s case. While excise duty is payable on clearance of excisable goods, the levy of service tax is attracted only when the services are provided to a client.
(vi) The following case laws were relied on:
(i) Rolls Royce Indus. Power (I) Ltd. v. CCE wherein it was held that two viz., one giving advice and other accepting it, were absent, and in such a case, demand was not sustainable – Section 65 (31) of Finance Act, 1994.
(ii)Bajaj Auto Ltd. v. CCE wherein it was held that Service tax – Recovery – Non-resident/person out side India providing service in India – Tax cannot be recovered from service receiver in India as same person cannot be both client and agent, and amendment to Rule 2 of Service Tax Rules, 1994 by insertion of Clause (iv) for payment of tax by service receiver in India had only prospective effect – Section 68 of Finance Act, 1994.
(iii) Saturday Club Ltd. v. Asst. Commissioner, Service Tax Cell, Calcutta wherein it was held that principally there should be existence of two sides/entities for having transaction as against consideration. In a members club, there is no question of two sides. Members and club both are same entity. One may be called as principal when the other may be called as agent, therefore, such transaction in between themselves cannot be recorded as income, sale or service as per applicability of the revenue tax of the country. Hence, members club not liable to pay service tax in allowing its members to use its space as mandap.
(vii) The levy of penalty under Section 76 & 77 of Finance Act is untenable since the issue involves interpretation of the Act and Rules. It is well settled that no penalty is impossible on issue involving interpretation of the Act and Rules. The following case laws were relied on:
(i) Bilwara Spinners Ltd. v. CCE
(ii) Unipatch Rubbers Ltd. v. CCE
(iii) Delphi Automotive Systems v. CCE
(iv) Haryana Roadways Engineering Corporation Ltd.
(v) Bhilwara Spinners Ltd. 2001 (135) ELT 719 (Trib)
(vi) CCE, Indore v. Syncom Formulation (I) Ltd. 2002 (150) ELT 1228 (Tri- Del.)
4. The learned SDR urged that the Commissioner in the impugned order dated 17.6.2004 has clearly brought out that in the present case/there is a service provider and the service receiver and in view of this, the service tax is leviable on the service rendered by one unit to another. He also re-iterates the impugned Order-in-Appeal.
5. We have gone through the records of the case carefully. While dropping the proceedings against the appellants, the Asst. Commissioner in his order dated 27.6.2002 has taken into consideration the following facts:
(i) The service provider and the service receiver belong to the same Corporate entity known as Precot Mills Ltd with a single certificate of incorporation.
(ii)Share holding is for the Corporate body and balance sheet is prepared for the whole entity and not unit-wise.
(iii) For service tax to be leviable, the provider and the client of Management Consultancy Services need to be two separate legal entity as construed from Section 65(72) of the Act which is not the situation in the instant case.
(iv) It is usual practice that for internal accounting purposes and apportioning cost inter unit book adjustment are made in a corporate body. The Commissioner has not accepted the contention of the appellants and held that the internal accounting system of the appellants will not have any bearing on the payment of service tax. In our view, for the leviability of service tax, there should be a service providers and service receiver. As held by the Original authority (Asst Commissioner) in the present case both the service provider and the service receiver are part of the corporate entity which is known as M/s Precot Mills Ltd, It was emphasised that the debit note was issued only to evaluate the performance of Dyeing Unit as each unit is a separate profit center. In the case laws cited by the learned Chartered Accountant, the Hon’ble High Court of Calcutta has held that when the club space is allowed to be occupied by any member or his family members or by his guest for a function by constructing a mandap, the club cannot be called as ‘mandap keeper’ for the purposes of service tax. It was held that principally there should be existence of two sides/entities for having transaction as against consideration. In a member’s club, there is no question of two sides. Members and Club both are the same entity. One may be called as principal when the other may be called as agent, therefore, such transaction in between themselves cannot be recorded as income, sale or service as per applicability of the revenue tax of the country. Hence, members club are not liable to pay service tax in allowing its members to use its space as mandap. The ratio of the above case law is clearly applicable to the present case. M/s Precot Mills Ltd. is a Corporate entity. It has got various units which function as separate profit centers. When service is rendered by one unit to the other, debit note is raised for the value of service in order to evaluate the performance of a particular unit) Ultimately there is only one Balance sheet for the legal entity for M/s Precot Mills Ltd. and not for the separate unit. In other words, the appellants, M/s Precot Mills Ltd. do not receive any valuable consideration for services rendered by one unit of the appellant to the other unit, in view of the fact that the each unit is part of the same legal entity which is the appellant. To put it differently, when one renders service to oneself, as in the present case, there is no question of leviablity of service tax. The Asst. Commissioner’s order is correct and legal. Hence we do not find any merit in the impugned orders of the Commissioner which ignore the main point that there is no client relationship in the present transactions. In these circumstances, no penalty is leviable. Thus we allow the appeal with consequential relief.
(Operative portion of the order has been pronounced in the open court on completion of hearing on 27.02.2006)