Taking over management of business doesn't amount to 'Business Support Services'

Facts

1. Assessee entered into a contract with M/s. Kolhapur Sugar Mills Ltd. (' KSM') for manufacturing and sale of liquor in the name of KSM. It undertook the manufacturing activity as well as sale of products. KSM was allowed to use the entire infrastructure.

2. Since plant and machinery etc. were owned by KSM, it was decided that KSM would be paid Rs. 30 lakhs per annum; and balance profit (after deducting Rs. 30 lakhs) would be retained by assessee.

3. KSM was paying service tax on said amount under franchise services. Assessee booked said profit in its books as conducting charges. Department argued that 'conducting charges' received by assessee were consideration for Business Support Services and liable to service tax. Assessee filed appeal before Tribunal.

4. Tribunal decided in favour of assessee that activity of taking over management of business is not a 'service. Aggrieved by the order of tribunal, department filed appeal before Bombay High Court.

The High Court decided in favour of assessee as under:

a. Assessee had actually taken over the distillery unit of KSM. It undertook the manufacturing activity as well as sale of products. There was no evidence on record to show that the assessee had received any amount from KSM for providing any service in relation to the business. 

b. The activities of manufacturing and sale of liquor were conducted by the Assessee. The business support service covers only the services of supporting nature to main activity. Here, the main activity itself has been conducted and in these circumstances, the amount wasn’t liable to service tax under business support services - Commissioner of Central Excise & Service Tax, Kolhapur Commissionerate v. Karan Agencies [2015] 64 taxmann.com 374 (Bombay)