2026-VIL-865-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax liability on uninvoiced allocations made by parent company to subsidiary - Absence of contractual agreement and service provision - Parent company allocates certain expenses to its subsidiary group entities through both invoiced and uninvoiced allocations. The invoiced allocations are properly charged with markup as per transfer pricing policy and service tax is paid under Reverse Charge Mechanism. However, uninvoiced allocations representing expenses for the parent company's own consumption are reflected only in the parent company's books of accounts and not in the subsidiary's accounts – Demand of service tax on uninvoiced allocations contending that since debit entries were made in the system maintained by the parent company for the subsidiary, service tax liability arises – HELD - Service tax is a contractual levy premised on an understanding between service provider and service recipient, and absent any contractual agreement for provision of services between the parent company and subsidiary with respect to uninvoiced allocations, no service tax demand can be raised - The statutory provisions of Section 67 and Rule 7 of the Point of Taxation Rules require that the debit entry must be reflected in the books of accounts of the person receiving services, and since uninvoiced allocations are not reflected in the subsidiary's accounts but only in the parent company's accounts, the subsidiary cannot be attributed with service tax liability. The uninvoiced allocations represent cost sharing or reimbursement of expenses meant for the parent company's own consumption and not services provided to or consumed by the subsidiary, therefore such allocations cannot be subjected to service tax - The appellate authority's order dropping the entire demand of service tax and penalties is confirmed and the Revenue appeal is dismissed
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GSTAT Appeal filed wrongly...
By CA Vivek Jalan

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