By TIOL News Service

MUMBAI, MAY 22, 2014: THIS is a Revenue appeal.

The respondent is a group company of Zee Telefilms Ltd., EsselPropack Ltd. and Pan India Infravest Network Pvt. Ltd. The respondent was created and is working as a central hub for all the group companies in connection with various matters of common interest to the group, policy decision, facilitate and co-ordinate group activities at a common corporate platform, facilitate agreements for corporate requirements with local or foreign parties, equity participation etc. The respondent has been providing the following functions as and when required by each of the companies:-

+ Liaison with various government and other statutory authorities for various work related to the group of companies;

+ Administrative support for maintaining public relations, Media and newspapers and government;

+ Proprietary Internal Audit;

+ Banking and loan arrangements with bank and financial institutions from time to time as required, financial participation, private placement, mergers, acquisitions, demerger etc.;

+ Assisting in compliance with various statutes;

+ Assisting in compliance with FEMA and other related matters;

+ Assisting in company secretarial and other related matters;

+ Assisting and preparing various legal agreements, liaison with the advocates, solicitors, for finalizing legal agreements and

+ Any other matter as may be required from time to time.

The period involved is August, 2002 to April, 2005.

A demand notice was issued to the respondent demanding service tax under the category of “Management Consultancy Services”, on the above mentioned activities.

The adjudicating authority dropped the demand on the ground that the activity of Liaison & Representation are not consultancy services and hence not liable to service tax.

As mentioned, the revenue is in appeal against the said order.

The Bench sought to know from the respondent as to whether they had any agreement with various companies to whom they have provided different services and the answer given was that there is no written/formal agreement and whatever has been done is based upon the oral instructions. It was also enquired as to whether any invoices have been raised for different services provided to their group companies and it was informed that there are no separate invoices as the amount was charged on monthly basis and not item wise or for any specific service/activity.

It was submitted by the respondent that the functions done by them were executory in nature and not relating to advice or consultancy and, therefore, the said services cannot be held as management consultancy services.

Inter alia , the following decisions were cited in support -

1. Basti Sugar Mills Co. Ltd. - 2007-TIOL-657-CESTAT-DEL

2. Futura Polysteres Ltd. - 2011-TIOL-1404-CESTAT-MAD

3. Sundaram Finance Ltd. - 2007-TIOL-837-CESTAT-MAD

4. Ernst & Young Pvt. Ltd. - 2012-TIOL-704-CESTAT-DEL

5. United Telecom Ltd.- 2011-TIOL-56-CESTAT-BANG

6. Hindustan Ferodo Ltd. - 2002-TIOL-782-SC-MISC

7. Sharma Chemical Work 2003-TIOL-33-SC-CX

The Revenue representative submitted that definition of ‘management consultancy services' is not limited to providing advice and consultancy but to any service either directly or indirectly in connection with the management of any organization. It is only in the second part of the definition the word advice, consultancy are included. Even in addition to the advice and consultancy, it includes technical assistance. Further, activities like issuing FCCB worth US$ 85 million is definitely an activity which should come within the scope of management consultancy. Similarly, activity relating to bidding for cricketing rights in BCCI. Getting various borrowing facilities are management functions. The word ‘coordinating' used in the list of activities given by them implies advising and discussing. They advised their group companies and also held discussions with other agencies. Thus, the activities carried out by them are covered by the definition of management consultancy. Even for certain activities they themselves have used the word advising. And lastly, with Provident Fund department, they themselves have got registered as consultancy organization.

The Bench observed that there was no agreement for providing various services and no invoice had been issued so that the nature of service could be understood. Nonetheless, what was being done is not executory routine or operational functions but the management function wherein the respondent is advising their other group companies to handle a particular issue in a particular manner and they also undertake such discussion with various other organizations such as financial organizations, banks, BCCI, Govt. bodies etc., the Bench added.

After extracting the definition of "Management Consultant", the Bench while concluding that the services provided by the respondents would be covered within the scope of “Management Consultancy Services” gave the following analysis -

“The said definition has two parts. In the first part, the management consultant is defined as any person who is engaged in providing any service either directly or indirectly, in connection with the management of any organization in any manner. The second part of the definition which is an inclusive part extends the scope of the definition to any person who renders any advice, consultancy or technical assistance relating to conceptualizing, devising, development, modification, rectification or up-gradation of any working system of any organization. Keeping in view the limited information made available by the appellant, in our view, number of activities would get covered in the first part of the definition. We also note that the activities being undertaken by them include advice and consultancy also. In certain cases they are doing executory function also but such executory functions are connected with the advisory functions and are not related to routine or operational functions.”

The case laws cited by the respondent were distinguished and in the matter of limitation, the Bench observed that the respondent had not taken the registration with the Service Tax department and, therefore, no returns or documents were filed; there was no reason for the respondents not to take the registration. Inasmuch since facts were suppressed from the department the larger period of limitation had been correctly invoked. Penalty u/s 78 was held to be imposable along with that as mandated u/s 76 and also u/s 77 of the FA, 1994.

The Revenue appeal was allowed.

In passing: Perhaps this is not the last that we hear of this case.

Never give advice - sell it! - Quips & Quotes.

(See 2014-TIOL-832-CESTAT-MUM)