Business Transfer Agreements having a non-compete clause cannot be classified as Declared Service for demanding Service Tax

Last updated: 19 February 2024

Save Share

Quick Summary

The CESTAT Bangalore has ruled that Business Transfer Agreements (BTAs) containing non-compete clauses cannot be classified as 'Declared Services' for the purpose of levying Service Tax. The tribunal found that such clauses are typically part of the overall business transfer and not separate taxable activities. Furthermore, payments made for tolerating an act, unless for an independent arrangement, do not constitute consideration for a taxable service.

Court :
CESTAT, Bangalore

Brief :
The Hon'ble CESTAT, Bangalore, in the case of Naveen Chava v. Commissioner of Central Tax [Service Tax Appeal No. 20013 of 2021 dated January 30, 2024], held that in the current case, no evidence establishes that a substantial portion of the agreement refers to the obligations that are to be followed by the Appellants. Further, if any payment has been made for an independent activity of tolerating an act under an independent arrangement, such payments will not constitute ‘consideration.'Therefore, business transfer agreements ("BTA") entered by the Appellants having a non-compete clause cannot be classified as Declared Service under Section 66E(e) of the Finance Act, 1994 ("the Finance Act") for demanding Service Tax.

Citation :
Service Tax Appeal No. 20013 of 2021 dated January 30, 2024

Daily Limit Reached