TMI Blog2016 (2) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... s given above in the case of Merchant Banking Services would hold in this case also. The third category of service which have been classified under the Management Consultancy Service is the fees earned by the subsidiary of the appellant. We find that it has not been controverted by the department with any evidence that the payment is received in respect of activities undertaken by their subsidiary. The subsidiary is a separate legal entity under the Companies Act. The fees earned is not the income of the appellant company. Merely because the income is shown in the consolidated financial statement of the company and its subsidiary, the same cannot be a ground for demanding service tax from the company. Services in relation to software development projects - 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. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p fees, merchant banking service fees, other miscellaneous fees and equivalent penalty under Section 78 of the Finance Act 1994 apart from penalty under Section 76. Interest under Section 75 has been demanded. Revenue is in appeal against the vacation of demand of ₹ 3,66,96,304 on advisory fees for mergers and acquisitions, software 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ML in compliance with Bombay High Court direction 10. 21.12.2000 DSPML submitted the details to Director General of Service Tax 11. 15.02.2001 CBEC issued Public Notice in compliance with Bombay High Court directions 12. 28.02.2001 Finance Bill 2001 introduced new service category Banking and Other Financial Services which in its scope covered M A advisory and Merchant Banking services 13. 27.06.2001 CBEC issued Order No. 1/1/2001-ST clarifying that advice in relation to M A is also includable under the taxing entry of MCS 14. 17.09.2001 Show Cause Notice demanding ₹ 31.73 lakhs on advice rendered in relation to M A for the period 16.10.1998 to 31.03.1999 15. 17.10.2001 Reply to above SCN dated 17.09.2001 16. 05.06.2002 Adjudication Order confirming the levy proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31. 26.04.2010 Department preferred appeal to the Tribunal challenging above Order-in-Original to the extent it dropped levy of Service tax of ₹ 3,66,96,304 32. 20.12.2011 Stay Hearing before the Tribunal and Stay Order granting full stay towards recovery of tax from DSPML Anay Banhatti anaybanhatti@elp-in.com Show details He submits that that there are no elements of fraud, collusion, willful misstatement, suppression of facts, and contravention of any of the provisions of the Chapter with intent to evade payment of service tax which are the elements under Section 73(1) proviso of the Finance Act. Therefore, the extended period of five years under the proviso is not invokable. Drawing attention to the list of events above he states that at every step they declared to the department that they are rendering Financial Advisory Services as Merchant Bankers as well as in connection with Mergers and Acquisitions. It was informed in their letter dt. 1.2.2000 to the DG Service Tax that they are a merchant banker and carry out all activities of a mercha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities for clarification. Whereas in their case they had approached the Department for a clarification as is evident from the List of Events above. On a query from the Bench that they did not indicate the value of services in the Service Tax Return for the period AprilDecember 2001 he states that the column in ST3 return only indicates the value of taxable services and is a return for service tax paid or payable. 4. The Ld. Commissioner AR Mr Roopam Kapoor argues that in the grounds of appeal it is mentioned that no services were provided during the period December 1999-March 2000. It is therefore not possible for the department to presume that the appellant had intention to provide services during the period April-June 2000 unless it is declared in the ST.3 Return. Full disclosure was not made by the appellant. He further submits that the decision in the case of HSBC is not applicable. The finality on the issue for the period October 1998 to March 1999 in appellants own case will not come in the way of invoking extended time period as the value of services was not declared. The case of Nizam Sugar Factory only reinforced the contention that suppression is to be taken from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are performed and payments for all the activities were received during the period April- June 2000. This knowledge can only be sourced from the ST returns. It must be appreciated that in the returns no payments are shown to have been received prior to April 2000. Therefore Department had no knowledge that services continued to be rendered during April-June 2000. A legal obligation is cast upon the appellant to declare the value of taxable services under ST-3 Returns. Unless assesses enumerate the value of services rendered in the ST-3 Returns, department cannot dream that the service tax was not paid. Even in a normal case, for an assessee who renders various services, the department comes to know of the value of services received only through the ST-3 Returns for a particular period. In case the ST-3 Returns do not indicate value of certain services, it will amount to suppression of facts. In the present case the appellant had declared the value of financial services for the period July 2000 onwards in the ST-3 Return for the period April-September 2000, but they failed to declare the value of services rendered during the period April-June 2000 in the same return. The system of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the period July-September was declared in the ST.3 returns filed for the period April September 2000. But the value of services for the period April- June was not declared in the same ST.3 Return which is the statutory return. This non-declaration certainly amounts to suppression of facts and the contravention of the service tax statute/Rules with intent to evade payment of duty. It was all the more obligatory on the part of the appellant since they had pursued the matter in the High Court who directed CBEC to issue a clarification which was done on 27.6.2001. It can even be said that the spirit of the Bombay High Court order was not followed by the appellant. Therefore, in our considered view, the extended period of limitation is invokable in the present case. 6. We may now come to the issue on merits. 6.1 Ld counsel submits that the Merchant Banking Services are heavily regulated under the SEBI Rules and SEBI Regulations. The activities are not liable to tax under Management consultancy services as held in various judgements including in the case of HSBC (supra), KR Alloys vs CCE 2009(13)STR 584 and CLSA India vs CST 2014(34)STR 407. Further, para 11 of the CBEC circula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore it is a decision per incuriam. He relies on the Hon ble Supreme Court judgement in the case of Balaji Enterprises versus Collector of Central excise - 1997 (92) ELT 3 (SC) to say that legislative intent cannot be frustrated. 6.3 As regards the other categories of services, the ld counsel submits that the Advisory and Retainership fees are towards providing independent opinions and not in connection with the management of any organisation. The fees received by the subsidiary are not taxable in the hands of the company which is a separate entity. The fees received towards software development projects relate to activities in relation to software development which is taxable either under consulting engineer services or under Business Auxiliary Services Further under Consulting Engineer Services exemption was granted to services in relation to computer software by notification 4/99 dated 28.2.1999. The fees for underwriting of Government Securities is not taxable in view of the decision in the case of Commissioner of Service tax versus Kotak Mahindra Capital Co Ltd 2014-TIOL-77-CESTAT- MUM and CBEC circular number 126/08/2010 dated 10.8.2010. Lastly there are miscellaneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, Underwriting services and Stock broker services. 8.1 Under the Management Consultant Service, demand has been confirmed in respect of MBS, Advisory and Retainership fees, Management fees earned by the subsidiary and fees towards software development projects. 8.2. As regards the MBS, we find that Revenue has mainly relied on the decision of the Tribunal in the case of HSBC (supra) in which it was held that even though such services were covered under the Banking and other financial services from 16.7.2001, the same will be covered under Management Consultancy Service also prior to 16.7.2001. Tribunal relied on Section 65A to hold that when the activity is equally classifiable under two categories, it shall be classified under the sub clause which occurs first and thus held it classifiable under Management Consultant Service. For convenience we may reproduce the definitions of Management Consultant under Section 65 (65) and the Banking and Financial services under Section 65(10) as below: 65[(65) management or business consultant means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such date as the Central Government may, by notification, appoint. We find that in the present case the dispute is for the period April 2000 to December 2001 whereas Section 65A was inserted in the Finance Act, 1994 only 14.5.2003. Therefore, obviously the said Section cannot be applied in the present case and the judgment in the case of HSBC (supra) cannot be relied upon. In this view of the matter, the specific classification has to be decided and cannot be left to two alternatives. We find much reason in the argument of the Ld. Counsel that post 16.7.2001 the language of the definition of Management Consultancy Service remained the same. Therefore clearly when a specific entry has been introduced as clauses (iii) and (vi) of the definition of Banking service during the relevant period, it becomes apparent that the same cannot be classified under Management Consultancy Service. In reaching this conclusion, we find support in the language of the Finance Bill 2001, which refers to a new service tax entry of Banking and other Financial services. The TRU Circular F.No.B11/1/2001-TRU also terms the entry as a new service tax entry. The judgments in the case of Glaxo Smith Kline (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative intent was not to tax `aluminium scrap and Waste prior to the amendment made with effect from 1st March, 1989. What emerged from the manufacturing process was certainly not aluminium in crude form . From this judgment we conclude that what is to be seen is the obvious legislative intent to tax merchant banking services under the category of banking service w.e.f. 16.7.2001 and not to see any intended meaning of legislation in the definition of Management Consultant Service. We hold that the MBS cannot be classified under Management Consultancy Service and therefore no service tax is payable. 8.3. Service tax has been demanded on the Advisory and Retainership Fees received for providing independent/stray opinions. The Ld. Counsel argues that the opinions given are not in connection with the management of any organization and thus not covered under the Management Consultancy Services. We find from the adjudication order that the fees are towards activities of financial ties/private placement, financial valuation services etc. We find these activities to be squarely covered under the definition of Banking and other Financial Services and therefore our views given above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is demanded is the fees for underwriting government securities. We have seen the cited judgment in the case of Kotak Mahindra Capital Co. Ltd. (supra). This judgment refers to Board Circular 126/8/2010-ST dt. 10.8.2010 which clarifies that service tax liability does not arise on underwriting fees during the course of dealing in government securities. Therefore, service tax is not payable on these services. 10. The last group of services are those on which demands have been confirmed on the following service charges: (i) Gained on squared of transactions; (ii) Write back of credit balances in payable A/c; (iii) Recovery of expenses from client; (iv) Recovery of bad debts,. We find that these activities, as the very nomenclature shows, are actual adjustments of expenses/debts etc. There is no service involved in these activities. Therefore no service tax is payable on these activities. 11. Revenue has challenged the vacation of demand on Merger and Acquisition services by the Commissioner on the grounds of limitation. We may examine the issue on merits. The Ld. Commissioner AR referred to the Principal Bench in the case of Jetlite (India) Ltd. Vs. Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. Reliance is placed on the Tribunal judgment in the case of Board of Control for Cricket in India Vs. Commr. of S.T., Mumbai 2007 (7) S.T.R. 384 (Tri.-Mumbai). It was held that - 9. In view of the above guidelines laid down by Honble High Court, the expression in relation to, though expansive, has to be read in context and cannot be given such a vast meaning so as to cover any activity, howsoever remotely connected, if there is some element of display or exhibition of the same. The definition has to be interpreted, in a sense appropriate to the phrase defined and to the general purpose of enactment. (I.L.M. Cadija Umma Another v. S. Don Manis Appu, AIR 1939 Privy Council 63). Similarly, Honble Supreme Court in case of Hariprasad Shivshankar Shukla v. A.D. Divelkar reported in AIR 1957 S.C. 121 held that terminating the services of all the employees on taking over railway company by Govt. of India cannot be considered as retrenchment. Inasmuch as retrenchment connotes that the business it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d defeat the legislative intent. From the above, the legal position is that an interpretation of the scope of an entry should not be such which will lead to an illogical situation and lead to unnecessary complexity. The legislative intent should not be negated as held by the Apex Court in the case of Balaji Enterprises (supra). We respectfully follow the High Court judgment in the case Indian National Shipowners Association (supra). The new entry of Mergers and Acquisitions extends the coverage of service tax and is not the result of carving out a new entry from the Management Consultancy Service. Consequently we hold that service tax is not payable on M A Services prior to 16.7.2001 under the category of Management Consultancy Service . 12. As the service tax is held not payable the question of imposition of penalties does not arise. 13. In view of our findings above, we allow the appeal of appellant on merits and dismiss Revenue s appeal. Having decided on merits, our findings on limitation would have no relevance. The aspect of limitation was considered by us in some detail because learned Counsel had, at the outset, strongly contended that the major portion of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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