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2026 Supreme(Online)(CESTAT) 1902
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
Binu Tamta, Judicial Member, P.V. Subba Rao, Technical Member
Commissioner of CGST & Central Excise – Appellant
Versus
Dana India Private Ltd. – Respondent
Service Tax Appeal No.50734 of 2019|Service Tax Appeal No.50742 of 2019|Service Tax Appeal No.50743 of 2019|Service Tax Appeal No.50744 of 2019|Service Tax Appeal No.50745 of 2019
For the Appellants/Petitioners: Sangeet Kumar Meena
For the Respondents: B.L. Narasimhan, Kunal Aggarwal
Service tax cannot be levied on un-invoiced cost allocations between a parent company and its subsidiary in the absence of a contractual agreement, actual provision of services, or consideration, as mere internal book entries do not constitute a taxable service.
Headnote:(A) Finance Act, 1994 - Sections 66A, 67, 77, 78, 78A - Service Tax (Determination of Value) Rules, 2006 - Rule 5 - Point of Taxation Rules, 2011 - Rule 7 - Service tax on un-invoiced allocations - Whether allocation of head office expenses to subsidiary constitutes taxable service - Held, in absence of contractual agreement for provision of service and consideration, no service tax liability arises - Mere book entries in parent company's system do not amount to provision of service to subsidiary. (Paras 11, 12, 17, 18)
(B) Service Tax - Valuation - Gross amount charged - Explanation (c) to Section 67 - Inclusion of amounts credited or debited in books of accounts - Requirement of actual provision of service - Mere allocation of costs for stewardship or shareholder activities without corresponding service does not attract tax. (Paras 18, 19)
Facts of the case:
The revenue challenged the dropping of service tax demand on un-invoiced allocations made by a parent company to its subsidiary. The revenue argued that these allocations, recorded in the parent's financial system, represented taxable services. The respondent contended that these were internal costs for stewardship activities and not for services rendered to the subsidiary.
Findings of Court:
The court found that the un-invoiced allocations were not linked to any service rendered or consideration received. The allocations were internal costs for the parent company's own benefit and did not constitute a taxable service.
Issues: Whether un-invoiced allocations by a parent company to a subsidiary are liable to service tax and whether mere book entries in the parent's system constitute a taxable service.
Ratio Decidendi: Service tax is a contractual levy requiring both a service provider and a recipient. In the absence of a contract, service, or consideration, mere cost allocation or book entries do not create a taxable event.
Result: Appeals dismissed.
| Table of Content |
|---|
| 1. nature of service tax dispute regarding uninvoiced departmental allocations. (Para 1 , 2) |
| 2. revenue's contention on service tax liability for uninvoiced sg&a expenses. (Para 3 , 4 , 5 , 6) |
| 3. assessee's defense based on transfer pricing and absence of service delivery. (Para 7 , 8 , 9 , 10 , 11) |
| 4. in the absence of service and consideration, cost allocations are non-taxable. (Para 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20) |
FINAL ORDER NOs. 50940-50944/2026 Date of Hearing: 06.04.2026 Date of Decision: 19.05.2026 BINU TAMTA:
1. The Revenue is in appeal assailing the Order-in-Appeal, No. DDN/EXCUS/000/APL-DDN/14-18/2018-19 dated 01.01.2019 whereby the demand for non-payment of service tax on uninvoiced allocations made by the parent company to the respondent was dropped.
2. The facts as submitted by the Revenue is that the respondent was engaged in manufacturing of Axles and axle components for heavy vehicles falling under chapter heading 86071990 of CETA, 1985, and was also registered with service tax registration. On the basis of intelligence gathered by the officers of DGCEI, it was found that M/s. Dana Corporation, USA, Dana, USA was providing services relating to technical know-how, engineering sales promotion for Dana brand name, product development, human resources policies, finance & accounting system etc. to the Respondent. These cost/expenses were known by the nomenclature "Selling General & Administration expenses”, (S G & A Expenses) . The Appellant discharged their service tax liability on the above service only for the portions invoiced to them by Dana USA. However, a major
portion of said SG&A expense was in the form of un-invoiced allocations, on which no service tax was paid by the Respondent during January, 2012 to May, 2015. Subsequently, the respondent deposited the entire amount of service tax under protest. Show cause notice dated 17.10.2016 was issued to the respondent for demanding and appropriation of service tax of Rs.1,88,71,786/- along with applicable interest and alleging penalty under section 77 & 78 of the Finance Act, 1994. Penalty under section 78A was also proposed to be imposed upon Shri Sunil Joshi (G.M. Finance), Shri Manoj Agarwal(G.M. Finance), Shri Sarad Jain(Head of Finance), Shri Saket Sapra(Managing Director) for their acts of omission and commission in evasion of service tax. The Adjudicating Authority vide Order-in-Original dated 02.05.2017 confirmed the service tax demand of Rs.1,88,71,786/- and appropriated the same; imposed penalty of Rs.5,000/- upon the respondent under Section 77(2) & Rs.1,88,71,786/- under Section 78 of the Finance Act, 1994. Penalty of Rs.25,000/- each was also imposed upon Shri Sunil Joshi (G.M. Finance), Shri Manoj Agarwal (G.M. Finance), Shri Sarad Jain(Head of Finance), Shri Saket Sapra (Managing Director) under Section 78A of the Finance Act, 1994, Finance Act, 1994 Aggrieved by the said order, all the five respondents had filed appeals before Commissioner (Appeals), Raipur. The Appellate Authority allowed the appeals filed by the respondents and dropped the entire demand of service tax and penalties. Being aggrieved, the Department has filed the present appeals.
3. We have heard the extensive arguments made by both the sides and have perused the records of the case.
4. Shri Sangeet Kumar Meena, the learned Authorised Representative for the Revenue reiterating the findings of the Adjudicating Authority submitted that the Respondent is 100% subsidiary unit in India of the parent company as allocation for IT General, allocation regional general SGA, allocation product group SGA in HFM system maintained. Parent company made entries in the books of accounts and debited Rs.90,08,62,122/- to respondent during the year 2011 to that 2015. However, later on some portion of debited amount was invoiced and remaining portion was not invoiced by Dana USA. The respondent paid service tax on invoiced portion only (as a service recipient in terms of Section 6
