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TMI Blog2016 (2) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... tware development project fees, fees on services provided by appellants subsidiary. 2. The facts are that the appellant had provided various types of professional financial services and recovered fees for the same under different heads, that is, Advisory fees, Retainership fees, Advisory fees for Mergers and Acquisitions ( hereinafter referred as M&A), fees for Merchant Banking services ( hereinafter referred as MBS), Management fees earned by appellants subsidiary, fees for underwriting Government securities and some other minor fees. The Departments stand is that all services except Underwriting services and services related to Stockbroker services are covered under Management Consultancy Service. However the appellant's stand is that they were liable to pay service tax only from August-2001 under the category of Banking and Financial services which were brought into the service tax net from 16-07-2001. The period of dispute is April 2000-Dec 2001 for the M&A and MBS services and Jan-Dec 2001 for the other services. The SCN was issued in Oct 2004. 3. The Ld. Counsel Mr Rohan Shah at the outset submits that they have a very strong case on limitation as far as the demand on Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2002 Order of Commissioner Appeals holding the levy as barred by limitation and therefore unsustainable 19. 02.05.2003 Department appealed Commissioner (Appeals) order to CESTAT 20. 23.02.2007 CESTAT dismissed Department's appeal on limitation ground 21. 09.07.2001 TRU to clarify amendments in the forthcoming budget including introduction of Banking and Financial Services (BFS) 22. 16.07.2001 Introduction of Service tax category of BFS Proceedings No. 2 (presently under consideration) 23. 18.07.2002 Audit by Service tax Section of Central Excise Commissionerate 24. 14.11.2002 DSPML's letter submitting quantitative details of fees received 25. 20.10.2004 Show Cause Notice proposing levy of Service tax on several activities undertaken from April, 2000 to Dec, 2001 (1999-2003 for underwriting) 26. 24.12.2004 DSPML's Reply to above Show Cause Notice 27. 10.02.2005 24.02.2005 24.03.2005 29.03.2005 02.01.2007 26.02.2009 02.04.2009 DSPML's additional submissions 28. 17.03.2005 16.12.2008 Personal Hearing before the Commissioner of Service tax 29. 09.11.2009 Order-in-Original passed by the Commissioner of Service tax confirming Service tax dem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insist on procedural compliance for Petitioners activities specified at para 4(iii) of this Petition.. He submits that when the High Court Order is read with the petition, it appears that there was no bar on issue of show cause notice. 3.1 The Ld. Counsel contends that once show cause notice was issued on 17.9.2001 demanding duty of Rs. 31.73 lakhs on activity of advise rendered in relation to M&A for the period 16.10.1998 to 31.3.1999, and all the activities being in the knowledge of the department, the subsequent demand issued on 20.10.2004 for the period April 2000 to December 2001 on several activities undertaken becomes time barred as all the information was already available with the department. He relies on Nizam Sugar Factory Vs. Collector of Central Excise A.P. 2006 (197) ELT 465 (SC). He also places reliance on the judgment of the Tribunal in the case of Steel Cast Ltd. Vs. Commissioner of Central Excise, Bhavnagar 2009 (14) STR 129 (Tri.-Ahmd). He distinguishes the Tribunal decision in the case of HSBC Securities & Capital Markets (I) Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai 2014 (33) STR 530 (Tri.Mum.) stating that in this case it was held that the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CBEC gave a clarification dt. 27.6.2001 stating that the said services are in the nature of Management Consultancy Services. Having received this clarification in pursuance of High Court Orders, the appellant who themselves had approached the High Court cannot turn their back to the High Court directions and now take a stand that the confusion was still prevailing and, therefore, they could not deposit the tax for the period April June 2001. We may even say that this would, in a way, amount to not complying with the spirit of High Courts Order. It is a different matter that the Banking service was introduced from 1.7.2001, which covered under its ambit the various financial services rendered by the appellant. But the question remains why the appellant after pursuing with the High Court which ordered the CBEC to issue a circular which was done, chose not to pay service tax under the category of Management Consultancy Service for the period April-June 2000. The answer of the Ld. Counsel is that the despite these events, extended time period cannot be invoked because of all activities were in the knowledge of the department. We are unable to appreciate this response for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir Service Tax liability on this aspect. In fact, after issue of the clarification 37-B Order, it was the duty of appellant to pay the tax for the past period (at least normal period) or challenge the order. In the present case it was the duty of the appellant to pay the tax for April-June 2001 after receiving Board's clarification dt. 27.6.2001 which was issued on the directions of the Honble High Court of Bombay. 5.2 The judgment in the case of Nizam Sugar Factory was delivered in a different context. The issue there related to the duty on production of impure carbon doixide emerging as a bye-product. A show cause notice was issued for the period February 1978 to September to 1982 on 28.2.1984. Subsequently, another show cause notice was issued covering the years 1982-1983 to 1986-1987 invoking the extended time period. The Honble Apex Court held that once the first show cause notice was issued, the second show cause notice could not be issued invoking the extended time period as the facts were already in the knowledge of the authorities. Whereas in the present case it is not known to the authorities that the appellants are continuously providing all the services. It is on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt consultancy services and were liable to service tax post introduction of banking and other financial services with effect from 16.07.2001 and from that date the company had paid service tax. According to him the said service deals only with management of an organisation or system of an organisation. If held otherwise, various entries in the service tax law would become otiose, such as services provided by chartered accountants (section 65 (83)), cost accountants (section 65 (84), company secretaries (section 65 (85), etc. Most noteworthy is the fact that the definition of management consultancy service remained the same even after introduction of banking and other financial services. If Commissioner's contention was accepted, then the clauses (iii) and a part of clause (vi) respectively of the taxing entry banking and other financial services will get nugatory. He relies on the judgement of the tribunal in the case of BCCI versus Commissioner Service tax - 2007 (7) STR 384 to state that a service tax entry should be interpreted in a contextual manner and any interpretation leading to absurdity should be avoided. He also states that the decision of the Tribunal in HSBC case (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices. The scope and coverage of individual services is to be interpreted strictly in accordance with the statutory provisions. He relies on the Principal Bench decision of the Tribunal in the case of Jetlite India Ltd vs CCE New Delhi - 2010 (21) STR 119 and on the case of HSBC Securities and Capital markets (supra). 7.1 Regarding the software development project services, he submits that the Adjudicating authority, while dropping the demand, has not explained why the service is not covered under the Management Consultant Service. Further submits that where an income is booked in the account of the Principals and is not apportioned separately as per shareholding pattern of the subsidiary, it cannot be said that the subsidiary has provided the service. 7.2 Regarding the reliance by the appellant on the case of Glaxo Smith Kline (supra), he submits that the same pertains to provision of service of manpower. And the Tribunal observed that the charges are executory costs and not advisory costs for marketing the products. Thus the intention of the Tribunal was to cover the advisory services within the scope of management consultancy service . 8. We find that, on merits, the demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructuring and strategy; and (vii) Provision and transfer of information and data processing." Section 65A is also reproduced below: 65A. Classification of taxable services - (1) For the purposes of this chapter, classification of taxable services shall be determined according to the terms of the sub-clauses (105) of section 65. (2) When for any reason , a taxable service is prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows :- (a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description. (b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable. (c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merits consideration. (3) The provisions of this se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not to activities of merchant banking which find specific mention in the definition of banking services. Reliance is placed on the Hon'ble Supreme Court judgment in the case of Balaji Enterprises Vs. Collector of Central Excise 1997 (92) ELT 3 (SC) in which it was held that - "11. The legislature recognised that `Waste and Scrap could not be brought to tax as aluminium in crude form. If `Waste and Scrap was already included in Item No. 27(A), there would not have been any need for making the entry (aa). The amendment left sub-item (a) of Item 27 untouched. Moreover, every type of waste and scrap was not made taxable after the amendment made on 1-3-1981. Only the type of waste and scrap mentioned in Explanation III were subjected to duty. Sludge, dross, scalings, skimmings, ash and other residuals were left out. Before 1-3-1981 there was no guideline to decide what would constitute scrap for imposition of Central Excise. 12. All these things go to show that sub-item (aa)? was not clarificatory of sub-item (A) of Item 27. It was a new entry altogether bringing `Waste and Scrap for the first time to duty after specifying the limited scope of this entry by adding Explanation I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovider himself. In the present case, the subsidiary is the service provider and therefore tax, if any is payable by the subsidiary. Therefore, we hold that service tax is not payable on this amount. 8.5. Service tax has been confirmed on services performed in relation to software development projects. Revenues appeal says that the adjudicating authority has not discussed how the services are not classifiable under Management Consultancy Services. Whereas we find that revenue has not given any sustainable reason to show that the service is not covered under Consulting Engineer Service. It is seen that vide Notification No.4/99 dt. 28.2.99 the taxable service provided by consulting engineer in relation to computer software was exempted. The service that is Information Technology Service was specifically excluded from the scope of Business Auxiliary Service(BAS). Both these facts indicate Government's intention to classify the service under Gonsulting Engineer Service or under BAS. Therefore we are inclined to give the benefit to the appellant and hold that service tax is not payable on the service in question under Management Consultant Service 9. The next group of services on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of a new entry would pre-suppose that there was no earlier entry covering the said services. Our views discussed in para 8 above would hold in the case of M & A services also. The whole concept of management consultancy as related in the definition of Management Consultant does not give an impression that specific service 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 [Section65(85)] would all get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he activity without any change of the existing entry, has to be interpreted as if the earlier existing entry did not cover the subsequently created entry. If the subsequent entry was covered by the earlier entry, there was no reason or scope to create the present entry especially when the rate of tax in respect of both the entries remains unchanged. Certainly, creation of new entries was not by way of bifurcation of the earlier entry inasmuch as the earlier entry relating to advertisement remains unchanged without any change in the tax rate. As such, the introduction of new tariff entry do imply that the coverage in the new tariff for the purposes of tax was an area not covered by the earlier entry. It was so held in case of Glaxo Smithkline Pharmaceutical Ltd. reported in 2006 (3) S.T.R. 711 (T) = 2005 (188) E.L.T. 171 (Tri.-Mumbai) as also in case of M/s. ZEE Telefilms Ltd. & M/s. Star India (P) Ltd. v. CCE, Mumbai reported in 2006 (4) S.T.R. 349 (Tribunal) = 2006-TIOL-945-CESTAT-MUM. If it is held that the activity of sponsorship and sale of space were covered under the earlier heading of advertising agency, the same would lead to the redundancy of new legislation and would defe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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