By TIOL News Service

MUMBAI, MAR 18, 2016: THE appellants are engaged in professional advisory/consultancy services, Corporate Advisory Services, Financial Advisory Services & Consulting Services in relation to Merger & Acquisitions, to various customers/ clients falling under the category of Management consultancy Services.

A show-cause notice dated 10.04.2006 was issued demanding Service Tax for the period 2000-2001, under the category of "Management Consultancy services".

As the demand was upheld along with interest and penalties by the lower authorities, the appellant is before the Tribunal.

It is submitted that Tax liability on advisory services was introduced as a separate category under “Banking and Other Financial Services” only w.e.f. 16.07.2001; the demand, therefore, for services prior to this date is not sustainable. Reliance is also placed on the decisions in Indian National Shipowners' Association - 2009-TIOL-150-HC-MUM-ST & DSP Merrill Lynch Limited - 2016-TIOL-382-CESTAT-MUM where an identical issue was decided in favour.

The AR while reiterating the findings of the lower authorities relied upon Board Circular No. 1/1/2001-ST (Section 37-B) dated 27.06.2001 (para 9 and 11) to justify the stand by the department.

The Bench noted -

+ It is undisputed that the demand in this case is only on for rendering Advisory Services in respect of Merger & Acquisitions; Revenue wants to classify the said services under Management consultancy Services prior period to 16.07.2001.

+ It can be seen (from the definition of Management Consultant Services and Banking & other Financial Services) that services as rendered by the appellant, would not fall under Management Consultancy Services, as these services rendered by the appellant may not get covered even as per CBEC Circular dated 27.06.2001.

The Bench, thereafter, extracted the contents of paragraph 11 of the decision in DSP Merrill Lynch Ltd. - 2016-TIOL-382-CESTAT-MUM wherein it is inter alia observed –

"…The whole concept of management consultancy as related in the definition of ‘Management Consultant' does not give an impression that specific services such as Mergers and Acquisitions is covered by it. As we have discussed above, the concept of Management Consultancy is clearly consultancy and technical assistance in the running of the affairs of an organization. The definition itself refers to various aspects of the working system of any organization. Whereas “Mergers and Acquisitions” is a highly technical and restrictive term. Mergers refer to the mergers of organizations. Similarly, the word “acquisition” refers to acquisition of another entity by a company. Mergers and acquisitions cannot be related to the running of the affairs of an organization. If such a wide view is taken then, as stated by the learned Counsel, specific service entries in the Finance Act, 1994 such as practicing Chartered Accountants [Section 65(83)], Cost Accountants [Section 65(84)], and Secretaries [Section 65(85)] would all get covered under the definition of ‘Management Consultancy Service'. It would render many entries otiose. It is settled law that a service tax entry should be interpreted a contextual manner…."

After adverting to the decision in Indian National Shipowners' Association (supra), the Bench concluded that taxability of Merger & Acquisitions is covered under Banking and Financial Services, w.e.f 16.07.2001 and, therefore, Service Tax liability in the facts of thepresent case is w.e.f. 16.07.2001 only and not prior to that date.

Holding that the impugned order is unsustainable, the same was set aside and the appeal was allowed with consequential relief.

(See 2016-TIOL-652-CESTAT-MUM)