The Customs Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, clarified that when the joint intent of both the parties to the Memorandum of Undertaking (MOU) is to work together for mutual benefit, and no payment is made by one to the other for a specific activity, then such activity will not be taxable, being absence of ‘service receiver’/ ‘service provider’ relationship.
The Court explained that an MOU that is enforceable in a court of law is a contract, and in the MOU, the revenue sharing and the obligation of each party has been listed out.
The Division Bench comprising Ajayan T V (Judicial Member) and M Ajit Kumar (Technical Member) observed from perusal of the MOU that both parties undertake responsibilities jointly towards the successful implementation of the scheme for their mutual interest and benefit.
The Bench also noted that the amount received by the appellant is not fixed and depends upon the gross revenue earned, and such an agreement is not between two principals but are in the nature of self service to maximise the profit and thus increase their own individual share of the same, on a percentage basis.
Further, no payment is made by one to the other for a specific activity, added the Bench while explaining that one party does not provide a service to the other and both have their own areas of rights and responsibility for this joint working of the MOU.
The Bench stated that the minimum amount guaranteed to the appellant does not take away from the fact that the joint intent of both the parties to the MOU is to work together for mutual benefit. Thus, reiterating that an activity carried on by a person for himself or for his own benefit, cannot be termed as “service rendered”, and would not be exigible to Service Tax.
Briefly, the appellant has entered into an agreement with Noel Media & Advertising P Ltd. granting rights to display advertisements in the entire City Centre Mall for which the appellant received 40 to 50% of charges collected by Noel for allowing advertisements. Thereafter, an SCN was issued for recovery of service tax of Rs.23.06 lacs under the category of ‘Sale of Space or Time for advertisement’ and the adjudicating authority confirmed the demand with penalties.
Appearances:
CA Natasha Jhaver, for the Appellant/ Taxpayer
N Satyanarayanan, for the Respondent/ Revenue
