2026-VIL-1032-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Liability of proprietary concern for dues of erstwhile partnership firm - Whether a proprietary concern can be held liable for service tax demands pertaining to the period when an erstwhile partnership firm was in operation, where both entities have separate service tax registrations, different PAN numbers, and the partnership firm's registration was surrendered prior to issuance of show cause notice – HELD - The show cause notice is ab initio void and the demand is liable to be set aside on the ground that the Department failed to establish transferee liability of the proprietary concern for the tax arrears of the erstwhile partnership firm. While the liability of the erstwhile firm does not automatically vanish, the Department was obligated to bring on record whether the present proprietary firm had acquired the partnership's ongoing business in a manner that the proprietor could be held personally liable for the erstwhile firm's tax arrears and to duly reflect the proprietor as the successor and not the non-existent partnership firm. In the absence of any evidence of formal transfer or amalgamation of the business entity, when the proprietorship carries a fresh registration, transferee liability remains unestablished – Further, the show cause notice itself was not even addressed to the partner who is the proprietor but to the proprietary concern with fresh registration - The impugned order is set aside and the appeal is allowedrnrnService Tax levy on composite works contracts prior to Finance Act, 2007 - Whether service tax can be levied on indivisible composite works contracts involving transfer of property in goods prior to the introduction of the Finance Act, 2007 which expressly made such contracts liable to service tax – HELD - Service tax cannot be levied on composite works contracts prior to 1st June 2007 as the charging Section 65(105) of the Finance Act, 1994 refers only to service contracts simpliciter and not to composite works contracts - In the present case, the services rendered involve deemed sale of material used in execution of the works contract on which VAT has been duly discharged and therefore the very demand of service tax for the period before 1st June 2007 on services involving composite works contracts is non-existent. Once the very basis of demand has been demolished, the impugned order cannot be sustained and set aside.
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