By TIOL News Service

MUMBAI, JUNE 10, 2013: THE appellant M/s Glaxo Smithkline Pharmaceuticals Ltd. entered into an agreement dated 19.1.1999 with M/s Burroughs Welcome India Ltd. Both the companies had decided to merge with each other and prior to such merger, they decided to integrate and jointly carry out several day-to-day functions.

The details of such functions are specified in Clause (1) of the Agreement, which relates to commercial, marketing, corporate personnel, MRP II, quality assurance, training, direct taxation, corporate communications, field support cell, legal, distribution, information technology, corporate relations, medical services, market research, technical, corporate finance etc. Clause (2) of the Agreement provided for joint use of above mentioned functions by both parties and the activity cost incurred by the either of the parties to the agreement would be shared proportionately with the other and debit notes will be raised for sharing such expenses.

The department was of the view that the appellant was rendering ‘Management Consultancy Services' to M/s Burroughs Welcome India Ltd. and accordingly issued a show-cause notice demanding Service Tax of Rs.1,29,19,615/- for the period 1.1.2002 to 31.12.2002.

The adjudicating authority confirmed the demand and imposed penalties. Before the Commissioner (A), the appellant submitted that the issue has already been decided in their favour by the Tribunal vide order dated 20.08.2004 - (2004-TIOL-786-CESTAT-MUM) but the Commissioner(A) was not impressed.

So, the appellant is before the CESTAT.

It is submitted that in an identical circumstances for the previous period from 16.10.1998 to 31.12.2000 the Bench had examined the matter and came to the conclusion that the services rendered by the appellant to M/s BWIL would not come under the category of ‘Management Consultancy Services' and will be more appropriately classifiable under ‘Business Auxiliary Services', which came into tax net from July, 2003 onwards and hence the appeal needs to be allowed.

The Revenue representative submitted that in the referred order of the Tribunal, there is no specific reference to the agreement dated 19.01.1999; that the facts are not identical and hence the order needs to be sustained.

The Bench after considering the rival submissions observed -

"5.1 We have also perused the agreement dated 19.1.1999 between the appellant and M/s BWIL and from clause (1) of the agreement, it is evident that the appellant and M/s BWIL agreed to integrate and jointly carry out day-to-day functions in both the companies in various areas specifically mentioned in the said clause. It was also agreed that the functions would be used jointly and the activity cost incurred by either of the parties in agreement would be shared proportionately between the appellant and M/s BWIL. In other words, the terms and conditions of the agreement clearly show that the agreement was for rendering executory services and for sharing of the cost towards the same. Nothing in the said agreement relates or refers to management consultancy services to be rendered by the appellant to M/s BWIL. There is also no evidence led by the Revenue to show that the appellant gave consultancy to M/s BWIL in various field of management. In the absence of such any evidence, it has to be concluded that the agreement between the two parties are for executory services and not for any management consultancy services.

5.2 In the light of the above, the decision of the Tribunal in the appellant's own case (cited supra) squarely applies to the facts of the present case. It is also brought to our notice that the appeal against the said order of this Tribunal was also dismissed by the Hon'ble Bombay High Court and the said decision has become final."

In fine, the appeal was allowed with consequential relief.

(See 2013-TIOL-867-CESTAT-MUM)