By TIOL News Service

MUMBAI, DEC 16, 2013: THE dispute in the case is regarding leviability of Service Tax under "Management Consultancy Service" in respect of transactions carried out by the appellant during the period July 2000 to June 2001. In all the transactions the particulars of services given in the Bill/Invoice or mandate/agreement letter refer to "corporate advisory services" viz. assistance in due diligence process to clients, assistance in proposed divestment and corporate advisory services in connection therewith, advisory services to substantial acquisition of share of listed companies, etc.

Service Tax demand of Rs.53.88 lakhs has been confirmed against the appellant along with imposition of penalties and interest.

Before the CESTAT with a Stay application, the applicant submitted that none of these advisory services are in the nature of advice relating to conceptualizing, devising, development, modification, rectification or up-gradation of any working system of any organization which alone would fall within the scope of the definition of management consultancy services. Inasmuch as since the advice is only in relation to Merchant Banking services which service came into the service tax net only with effect from 16.7.2001 and, therefore, the service tax demand is not sustainable. It was also argued that the demand is hit by limitation as an Audit was conducted on their records by the department in February, 2001.

The Tribunal dispensed with the requirement of pre-deposit and granted a stay in the matter by observing thus -

There is prima facie force in the contention that the nature of the services provided by the applicants will prima facie not fall within the definition of management consultancy services which remains the same both prior to and after 16.7.2001.

Prima facie the organizations to whom the applicants are providing advisory services in the nature of assistance to corporate advisory services etc. as enumerated are to an existing organization and prima facie it cannot be said that the services rendered by them are related to either conceptualizing, devising, developing, modifying or upgrading of any working system of any organization.

We reported the Stay order as - (2008-TIOL-1241-CESTAT-MUM).

The appeal was heard recently and the result was pleasing to the Revenue.

After hearing the arguments of both sides and going through the agreements, the Bench observed -

+ On going through the agreements it is found that the nature of service is purely advisory in nature. All the advices are relating to the financial restructuring relating to business of various clients. It is true that in few cases in addition to advices, certain executor functions have also been carried out. However, ongoing through such agreements, we find that these executor functions have been carried out. We are therefore of the view considered view that main function has been advisory in nature and not execution, execution seems to be incidental to the advisory functions. In view of this position, we reject the appellant's contention that their activities are executor in nature and not advisory.

+ From the above definition of the "Management Consultant" it is clear that Management Consultant means any person who is engaged in providing any service in connection with the management of any organization in any manner. The definition is very wide and does not restrict itself to any particular field of Financial Management, Human Resources Management, Marketing Management, Production Management, Logistic Management, Procurement Management and any other area of management of the organization.

Adverting to the Board Circular 1/1/2001-ST (Section 37-B), Dated : June 27, 2001 in the context of merger and acquisition advisory services wherein the Board has obtained the opinion of Indian Institute of Management, Ahmedabad, the Bench observed -

"We also note that Financial Management including the type of services provided are typically taught in Management Courses/Education. Even most of the officers in organization such as that of appellants are MBAs.

In view of the position, as explained in above para as also the definition given under the law, we have no hesitation in holding that the various transaction covered by the said show cause notice will be covered by the ‘Management Consultancy Service'."

As regards the submission of the appellant that from 16.7.2001 banking and other financial services were introduced and the definition under the banking and financial services included the activities of appellant, the Bench held -

"We observe from the above definition that the said definition is very wide and covers whole lot of activities relating to banking and other financial services. Most of these services cannot be included within the scope of the ‘Management Consultancy Service'. However, services covered by clause (vi) will be covered under Management Consultancy Service also. Thus the position before 16.7.2001 is that the said services were covered under the Management Consultancy Service, and w.e.f. 16.7.2001, the same would get covered under the Management Consultancy Service as also "Banking and Other Financial Services" and one will have to decide among the two services using provisions of law for classification of services. Such provisions about the classification of services are provided under Section 65A of the Finance Act…."

The Bench while distinguishing the decisions in Indian National Shipowners' Association & Jetlite (India) Ltd. by noting that the activities involved in the two contending categories of services were wide apart also observed -

"We are not in agreement with the appellants contention that since the service is covered under BOFS w.e.f. 16.7.2001 the same cannot be covered under any other entry before that date. On going through the various services before the introduction of negative list concept (which has done away with positive list), it would be seen that there is no pattern or mutual exclusivity in the scope of various services. In Customs and Central Excise Tariff the classification of the goods is based on highly scientific pattern. However incase of service tax it is seen that various services were brought into the tax net from 1994 onwards on adhoc basis. The various services have no pattern. Description of the services is not mutually exclusive. Some of the services are very specific and precise while some are wide in scope. It is for this reason that at times re-course has to be taken to Section 65A for classifying particular services at a particular point of time…."

The claim of the demand being hit by limitation as Audit had been conducted was rejected by observing thus -

"…The appellant was registered as stockbroking service and the audit would confine to the duty payments made relating to stock broking service. In any case audit period and the period under the present show cause notice are different. The demand in the present case is after the audit period."

On the alternate claim that the Board Circular had itself stated that there was a doubt in the subject matter and hence extended period cannot be invoked, the Bench while dismissing the plea had this to say -

"…It appears that a public notice was issued on 18.2.2001 and in response to that certain agencies have represented and it is in that context that the said order was issued to clarify the doubts of such agencies. Appellants have not produced any evidence which indicate that they had such doubt and for they have approached the departmental authorities for clarification about their service tax liability on this aspect. In fact, after issue of the clarification37-B Order, it was the duty of appellant to pay the tax for the past period (at least normal period) or challenge the order. This itself indicates willful intention to evade service tax. Appellants had not undertaken any registration relating to ‘Management Consultancy Service' and thus suppressed their activity from the departmental and therefore they have contravened the provisions of Service Tax Act and Rules with a willful intention to evade duty…."

In the result, the appeal was dismissed.

In passing: Never give advice - sell it! - Quips & Quotes

(See 2013-TIOL-1869-CESTAT-MUM)