By TIOL News Service

MUMBAI, APR 05, 2017: THIS is a Revenue appeal.

Respondent does auditing of accounts, checking of clients' accounting data, consultancy, VAT and I-T return checking, preparation of documents in compliance with various statutes besides representing clients before tax authorities and statutory bodies.

The claim of the respondent is that they provide 'Legal consultancy service' which was rendered taxable only with effect from 1st May 2011.

Commissioner(A) held that, as per clarification in F. No. 334/4/2006-TRU dated 28th February 2006 when Support services of business or commerce was incorporated in Finance Act, 1994, only such activities as are found necessary to be done by organizations but outsourced be taxed under the new insertion . It is further held in the impugned order that respondent was primarily in the business of ensuring compliance with requirements of statutes relating to taxation and that, insofar as accounting is concerned, the activities are restricted to checking and verification, and not to maintenance of accounts. Moreover, respondent, though rendering services that a Chartered Accountant would is not a qualified Chartered Accountant and that the other aspects of work are akin to that performed by legal consultants. Accordingly, the ST demand of Rs.16,06,845/- for the period from April 2010 to March 2011 was set aside.

Revenue submits that the assessee has been rendering a mix of 'business support service' and 'accounting service', and,therefore, the finding of the lower appellate authority that professional services are not covered within the ambit of 'support service of business or commerce' is erroneous in the absence of an exclusion in the definition. Reliance is placed on the decision in Jaded Siddappa & Co - 2008-TIOL-135-CESTAT-BANG .

The respondent produced the certificate of enrolment with Commissioner of Sales Tax, Maharashtra issued u/r 66(2) of Bombay Sales Tax Rules, 1959 to evince the nature of services undertaken.

After considering the submissions, the Bench observed -

+ Having seen the certificate of enrolment, it cannot be in doubt that respondent appears before tax authorities in statutory proceedings. Such appearance also involves preparation and certifying of documents that are required to be filed in accordance with compliance necessities. We do not find any evidence or submission in the grounds of appeal to controvert the findings of the first appellate authority that respondent is not an accountant who maintains the books of the clients.

+ We also take note that the definition of the taxable service in section 65 (104c) of Finance Act, 1994 broadly includes all activities that are, in the normal course of business, matters of internal processes of an entity. These relate primarily to the various functional aspects of the working of an organisation such as production management, sales management, financial management and marketing management and that, when these essential works of an organization is outsourced, the provider of outsourced service is liable to be taxed.

+ Submission of returns or appearance for resolution of disputes are not activities that are directly concerned with furtherance of business activities of an organization . On the contrary, these are activities that are thrust upon an organization for its very survival in the realities of the legal environment in which the organization functions. These are unavoidable and are not easily performed by the human resources available within the organization. Professional outside assistance has, necessarily, to be solicited and, considering the inevitability of such soliciting, loses the character of having to be outsourced for economic viability.

+ Unless an activity is optional for the continued existence of the organization and permits the flexibility of self-performance vis-à-vis outsourcing, it does not appear to invite coverage as 'support service of business or commerce' and the appeal of Revenue has not ventured to do so.

The Revenue appeal was rejected.

(See 2017-TIOL-1131-CESTAT-MUM)