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ST - 'Merger and Acquisition' is highly technical and a restrictive term and cannot be covered within definition of 'Management Consultant': HC

By TIOL News Service

MUMBAI, SEP 14, 2017: THE CESTAT while allowing the appeal in M/s Kotak Mahindra Capital Co. Ltd. - 2016-TIOL-652-CESTAT-MUM held –

ST - Merger & Acquisitions is covered under Banking and Financial Services and, therefore, Service Tax liability arises only w.e.f. 16.07.2001 and not prior to that date – Appeal allowed: CESTAT

While concluding as above, the Bench had placed reliance on its earlier decision in DSP Merrill Lynch Ltd . - 2016-TIOL-382-CESTAT-MUM wherein it was held –

ST - New entry of Mergers and Acquisitions (M&A) extends the coverage of service tax and is not the result of carving out a new entry from Management Consultancy Service - ST is not payable on M & A Services prior to 16.7.2001 under the category of 'Management Consultancy Service': CESTAT

In both the cases, the CESTAT had derived support from the Bombay High Court decision in Indian National Shipowners' Association  2009-TIOL-150-HC-MUM-ST.

Aggrieved Revenue is in appeal before the Bombay High Court against both these orders.

The counsel for the Revenue relied upon Board Circular No. 1/1/2001-ST (Section 37-B) dated 27.06.2001 to justify the stand by the department. Paragraph 10 of the said Circular is emphasised upon. It reads -

"10. Now, therefore, in exercise of the powers conferred under Section 37B of the Central Excise Act, 1944, (as made applicable to service tax by Section 83 of the Finance Act, 1994) the Board hereby clarifies that any services rendered in relation to Merger and Acquisition will be covered under the scope of taxable services provided by "management consultant" and these services will be liable to service tax accordingly."

Reliance is also placed on the decision in HSBC Securities & Capital Markets (I) P. Ltd. -   2013-TIOL-1869-CESTAT-MUM.

Incidentally, both the above viz. Circular and the case law were cited by the AR before the CESTAT but without success.

The High Court considered the submissions and observed -

"9. …, we find merit in the submission of the learned counsel for the Assessee that "Merger and Acquisition Services" having been introduced for the first time as a separate category under Banking and other Financial Services with effect from 16th July 2001 would show that the said service was never a part of Management Consultancy Services which has been in existence at all times. We are of the view that "Merger and Acquisition" is highly technical and a restrictive term and cannot be related to the managing of the affairs of the organisation which would come within the definition of "Management Consultant". We are also of the view that the decision of Division Bench of this Court in Indian National Shipowners Association (Supra) would apply in the present case partially since that case has considered the issue of introduction of a new entry viz. mining service in the Finance Act and held that the levy of service tax on this service would be after the insertion of the new entry. We accordingly hold that service tax is payable on Merger and Acquisition Services only upon its insertion in the Banking and Financial Services with effect from 16th July 2001 and was not leviable prior thereto."

The Appeals filed by the Revenue were dismissed.

(See 2017-TIOL-1880-HC-MUM-ST)