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TMI Blog2014 (12) TMI 1235X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of about Rs. 95 crores from ICICI Trustship Services Ltd., the hotel business of 'Regent Hotel' was acquired by the appellants. An agreement was entered between the appellants, LHL and ICICI Trustship Services Ltd., as ICICI was ready to pay the loans of various other parties payable by LHL to the tune of Rs. 331 crores for settlement of repayment of loans and transaction of transfer of the ownership right to the appellants. Therefore, as per the agreement, the share of the ICICI Trustship Services Ltd., was 80.1% and the share of the appellant was 19.9% and new company was formed and named as 'Taj Lands End Ltd.' As per the said agreement, the appellants have taken over the activities of the hotels such as develop, conduct, operate, manage, renovate, modernize and carry out all activities of incidental and ancillary business to the business of hotelering or otherwise. As per the said agreement, M/s. LHL was entitled for share of the profit on the basis of gross operational profits. 3. After going through the agreement in detail and various clauses thereof, the department was of the view that the activity undertaken by the appellant falls under the category of 'Management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom "Taj Lands End Pvt. Ltd." to "Taj Lands End Ltd.". Likewise, the name of the hotel was changed from "Regent Hotel" to "Taj Lands End" w.e.f. 10-9-2002. With effect from 1-4-2006, Taj Lands End Ltd. merged with appellant pursuant to Hon'ble Bombay High Court's order dated 9-3-2007. 7. In support of the above contentions of the appellant, ld. counsel submits as under :- (A) The expression 'licensing agreement'/'license fees' is misnomer, as, it was a takeover of the Regent Hotel owned by LHL by the appellant and hence, it is a sale and purchase transaction which could have been concluded on disposal of sundry creditors, transfer of shares, etc. It is a settled position of law that the substance of the agreement is to be considered and not the wordings used in the agreement, based on the Hon'ble Supreme Court judgment in the case of Bhopal Sugar [(1977) 3 SCC 147]. (B) Various clauses, which are reproduced in all the three agreements, would substantiate that it is a case of purchase of Regent Hotel from LHL through the processing of purchase of shares from the then shareholders of LHL by the appellants (IHCL) and Trust, i.e., ICICI Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck to TLEL provided no amount for interest or redemption of Debentures was due and outstanding. (E) The submissions made hereinafter would further substantiate that the impugned order is neither sustainable on merits nor on limitation, inasmuch as : (i) that 'Regent Hotels' owned by Lokhandwala Hotels Ltd. was acquired by appellants under Shareholders and Share Acquisition Agreement dated 9-9-2002 and name of hotel was changed from 'Regent Hotel' to 'Taj Lands End'; (ii) that appellants also acquired the company M/s. Lokhandwala Hotels Ltd. and changed the name of the company to 'Taj Lands End Ltd.' and held 19.9% share capital in the same and remaining 80.1% share capital was held by a Trust, i.e., ICICI Trusteeship Services Ltd., which was under control of appellants; (iii) that after acquisition of hotel business of 'Regent Hotel', ownership of assets/property in the said hotel continued with M/s. Lokhandwala Hotels Ltd., hence, appellants entered into 'License Agreement' dated 9-9-2002 with M/s. Lokhandwala Hotels Ltd. for acquiring the assets/property on rental basis for conducting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ganics - 2009 (14) S.T.R. 620 (T) (c) Sundaram Finance Ltd. - 2007 (7) S.T.R. 55 (T). The ratio of the said judgments would squarely cover the present case and further the judgment in the case of Basti Sugar (supra) stands upheld by Hon'ble Supreme Court therefore, any view contrary would not be permissible invoking the judicial discipline. (x) that the test for coverage under "Management Consultant Service" is - Whether advice has been rendered for improving an existing organization by conceptualizing, devising, development, modification, rectification or upgradation, as held in the following cases, which is not so in the present case : (a) Nirulas Corner House Pvt. Ltd. - 2009 (14) S.T.R. 131 (T). (b) Telephone Cables Ltd. - 2007 (7) S.T.R. 657 (T) (c) AISCO Engg. Pvt. Ltd. - 2006 (1) S.T.R. 324 (T). (xi) the substance of the Agreement has to be taken into account to understand the true relation based on Hon'ble Supreme Court judgment in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; that extended period is invocable only when there is positive act other than mere failure on the part of assessee and there must be conscious or deliberate withholding of information by the assessee, based on the following judgments : (i) Padmini Products - 1989 (43) E.L.T. 195 (S.C.) (ii) Chemphar Drugs - 1989 (40) E.L.T. 276 (S.C.) (iii) Nestle India - 2009 (235) E.L.T. 577 (S.C.) (e) that when legal interpretation of provisions is capable of two or more different interpretations and if assessee interprets the same to his benefit, it cannot be taken as suppression of facts or mala fides on his part, hence, extended period is not invocable, as held in the following cases : (i) Lanxess ABS Ltd. - 2010 (259) E.L.T. 551 (T) = 2011 (22) S.T.R. 587 (T) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod would not apply. (xiv) in absence of any deliberate and conscious withholding of any information whatsoever from the Department, appellants cannot be held to have suppressed any information which they were not statutorily required to submit and hence, extended period is not invocable; (xv) that when appellants have acted bonafidely, neither extended period nor penal provisions are invocable. (xvi) that when there was bona fide belief that service tax is not payable, there was reasonable cause, for failure to pay service tax, hence, penalty is not imposable under Sections 76, 77 & 78 at all, in view of Section 80, as held in the following cases : (a) S.R. Enterprises - 2008 (9) S.T.R. 123 (Bom.) (a1) Upheld by SC - 2008 (12) S.T.R. J133 (S.C.) (b) Flyingman Air Courier - 2006 (3) S.T.R. 283 (T) = 2004 (170) E.L.T. 417 (T) (c) Hutchison Telecom - 2006 (1) S.T.R. 80 (T) (c1) Upheld by Bom-HC - 2008 (9) S.T.R. 455 (Bom.) (xvii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... els & Oriental Hotel Ltd.' where they are paying service tax on the said activity. Therefore, the appellant are required to pay service tax on the said activity. 9. He further drew our attention to the certain clauses of the agreement which are reproduced herein as under : "(i) IHCL shall pay to LHL consideration comprising of Licence Fee, semi-annually by way of splitting of Gross Operating Profit (GOP) ranging from 70% to 50%. (ii) The staff of the hotel, which were there on the employment rolls of LHL prior to and after the execution of the Licence Agreement, shall continue to be employees of the LHL. (iii) LHL and IHCL from time to time will hold discussions to formulate strategies to be adopted for increasing the business of LHL and to explore potential/strategic areas for business development. (iv) IHCL will provide reports and/or keep LHL informed generally of the activities carried on by IHCL at the hotel and were to invite suggestions from LHL in this regard. (v) Nothing contained in the same should be construed as establishing or creating a relationship of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em is in lieu of services provided by them. 11. It is further submitted that the contention of the appellant that they were conducting, managing and operating their own business and they have paid rent in the form of licence fee to LHL towards renting of assets by LHL is contrary to the terms and conditions spelt out in the said licence agreement. In common parlance, the term, 'licence fee' or 'rent' is referred to pre-determined and fixed periodical amounts payable to landlord and normally has no concern or nexus with the profit or loss incurred/to be incurred by the tenant or lessee. In the instant case, the amount of licence fee payable was not pre-determined and fixed but it was percentage of GOP. As per this agreement, if in a particular period the appellant had booked losses, the licensor shall forgo his licence fee. It is not prudent business entity to offer huge property without seeking security. Therefore, by no stretch of imagination, the above arrangement be termed as renting of the hotel by LHL to the appellant. 12. He submits that the contention of the counsel that the Income Tax Department has also considered the amount paid to LHL as licence fee as rent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uto Center vide Interim Order No. M/35/14/SMB/LB/C-IV, dated 12-9-2013 [2014 (33) S.T.R. 506 (Tri.-LB)] has observed as under :- "20. On a consideration of the apparent conflict of opinion in the decisions mentioned in the order of reference and the other decisions which were cited at bar, it is clear that no uniform principle emerges as would guide determination of whether a particular transaction involving an interface between an automobile dealer and banker financial institution would per se amount to BAS. The identification of the transaction and its appropriate classification as the taxable BAS or otherwise must clearly depend upon a careful analysis of the relevant transactional documents. Only such scrutiny and analysis would ensure rational classification of the transaction. 21. Where mere space is provided along with furniture for facilitating accommodation of representatives of financial institutions in the premises of an automobile dealer and consideration is received for that singular activity, such consideration may perhaps constitute a rent for the provision of space and associated amenities. Such restricted relationship/transaction may not amount to BAS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment Date applicable for such instalment. 21st to 30th instalment : Amount payable as License Fees shall be 50% of the GOP of the Hotel of the Semi-Annual Period immediately receding the Payment Date applicable for such instalment. 31st instalment : Amount payable as License Fees on the date of expiry of the Term of this Agreement shall be 30% of the GOP of the Hotel for the period from the end of the Semi-Annual Period considered for calculating the 30th instalment till the end of the Term of this Agreement. Provided however that the License Fees payable for the 31st instalment shall be paid after adjusting any balance of Additional Amounts (as defined hereinbelow) paid by IHCL including any interest accrued thereon that may be outstanding as on that date. In the event such outstanding balances exceed the Licence fees payable in the 31st instalment by IHCL, IHCL shall be entitled to a refund of such excess amounts. In the event that the License Fees as computed above are lower than the Estimated Cash Requirements for any instalment, LHL shall arrange for and pay such amounts failing which IHCL shall, pay or arrange such amounts which is equal to the difference between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shings, fixtures, paintings, equipment and all other amenities and support services presently available to the Hotel have also been handed over to IHCL and an inventory of the same shall be prepared and signed by both the Parties within 30 days of the Appointed Date and the same shall be deemed to be a part of this Agreement (collectively referred to and called "the LHL Assets"). IHCL may at its cost have the right to replace any of the LHL Assets with the prior approval of LHL & Secured Lenders in the event the aggregate value of LHL Assets being replaced by IHCL exceeds 5% of the book value of LHL Assets in any Financial Year Provided that IHCL shall deposit all proceeds arising oh account of replacement of the LHL Assets into a separate no lien account to be opened with ICICI Bank known as 'Sale of Asset A/c'. This account would be operated by such persons as the board of directors of LHL may decide. IHCL shall be entitled to utilize the amounts lying in the said account in order to replace the existing LHL Assets, for and on behalf of LHL, provided that the new assets procured by IHCL in replacement of the existing assets of LHL shall be the property of LHL and shall be charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to raise loans/effect borrowings for financing the operations of the Hotel by offering all current assets as security. 6.2 All the book debts in respect of the Hotel pertaining to the period upto the Appointed Date shall be to the account of LHL. Amounts if any, received by IHCL, with respect to such period, subsequent to the Appointed Date, shall be credited by IHCL to the account of LHL. 7. EXISTING MORTGAGE 7.1 After the Appointed Date, except the mortgage already created or agreed to be created by LHL in flavour of the Secured Lenders, LHL shall not create any mortgage, charge, liens or encumbrances of any nature on the Hotel and any constructions thereto, save and except, with the prior written consent of IHCL which consent will not be unreasonably withheld. 8.1 All staff at the Hotel, who are on the employment rolls of LHL, prior to and after the Appointed Date shall continue to be employees of LHL, save and except the personnel deputed by IHCL to the Hotel who shall remain the employees of IHCL. All recruitment of new staff for the Hotel shall be done by IHCL and such, new staff shall be the employees on the rolls of LHL. IHCL shall keep LHL inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to LHL for purchase at a fair price to be mutually agreed upon between the Parties or at a value determined by professional valuers which will be final and binding on both the Parties, failing which within 90 days, IHCL shall take away all such assets. However, in respect of the Hotel building and other assets the removal of which will cause irreparable damage to the Hotel building, LHL shall be bound to purchase the same at a fair price to be mutually agreed upon between the Parties, failing which a value determined by professional valuers would be the purchase price payable by LHL. 10.4 IHCL shall be entitled under this Agreement to use and occupy at all times exclusively the Hotel and all other structures/buildings constructed pursuant to expansion. 11.1 LHL and IHCL shall from time to time hold discussions to formulate strategies to be adopted for increasing the business of LHL and to explore potential/strategic areas for business development. IHCL shall provide reports and/or keep LHL informed generally of the activities carried on by IHCL at the Hotel and shall invite suggestions from LHL in this regard. 12. INSURANCE 12.1 IHCL shall at its cost an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained in relation to IHCL's assets, the owner of such replaced/restored assets would be IHCL. 14.1 During the Term of this Agreement, the Hotel shall be known and designated by such name as from time to time may be selected by IHCL. IHCL may permit the use of any of its Intellectual Property Rights, service marks, trademarks or any other similar property at the Hotel. LHL acknowledges that all trade names and trademarks provided by IHCL to the Hotel, including without limitation, the names 'Taj'' with all its variations, visual, phonetic or grammatical ("Intellectual Property Rights") shall constitute the exclusive property of IHCL. Accordingly, LHL agrees that no right or remedy of LHL for any default of IHCL to handover the hotel to LHL, upon the expiration of this Agreement shall confer, nor shall any provision of this Agreement confer, upon LHL, or any transferee, assignee or a successor of LHL of any person, firm or corporation claiming by or through LHL, the right to use the name "Taj" either alone or in conjunction with some other word or words, in the use and operation of the hotel by LHL, or any person, firm or corporation claiming by or through LHL. LHL shall not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the services during the Term of this Agreement. (f) .... (g) it shall pay and discharge all the existing fees levied or demanded or payable to the Municipal Authorities or the State Government Authorities or any other authorities concerned as the case may be in respect of the operations of the Hotel if they pertain to the period after the Appointed Date. IHCL further declares and confirms that it shall take all such steps as may be necessary and appropriate to contest such levies, taxes, cess, etc., in any Court of law/Tribunal including filing of appeals, writ petitions, suits and take recourse to such other remedies as it may deem fit and necessary. (h) It will promptly pay the consideration in the manner provided in Section 4. .... ... (m) it shall pay sales tax, excise, customs, octroi and other duties, dues, levies and other statutory liabilities relating to the Hotel and its operations imposed during the Term and discharge the same provided they pertain to the period after the Appointed Date. (n) It shall pay provident fund contribution, ESIS co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated hereinabove, the interest of the LHL was secured and on the other hand, a prudent business entity would not continue incurring losses which LHL was doing in the past; therefore, it was a move to sell the hotel and not to continue the hotel being run in losses. Therefore, the contention of the ld. AR is not acceptable. Moreover, in this case the appellant were paying the licence fee as agreed in the agreement on half early basis to settle the amount of liability payable to LHL being .the seller of the hotel. 22. We further find that during course of arguments the ld. Counsel for the appellant produced two licence agreements (a) Agreement between Piem Hotels Ltd. and the appellant dated 30-12-2004 and (b) Oriental Hotel Ltd. and the appellant dated 28-1-2003. 23. In those cases, it is the contention of the ld. counsel for the appellant that they are not required to pay service tax as they are themselves managing the hotel. But they are paying service tax on persuasion of the department. The fact of those cases are totally different from the facts of the case in hand. In fact, the case in hand the agreement has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he employees of the Party of the First Part. 5. That both frames have agreed that nothing contained in this agreement shall create employer-employee relationship between Party of the Second Part and any officer or workmen employed in the Factory at Maizapur. 6. That the loan application for sanction of facility for liquidation of cane price is at an advanced stage with a Bank/Financial Institution. Joint efforts will be made for expeditious sanction and liquidation of cane price of last season (Rs. 700 lacs) as quickly as possible. 7. That both the Parties have agreed that joint effort may be made to ensure the allotment of 40 lac quintals of cane to factory during the ensuing season from the reserved/assigned area of the Factory for which they have submitted the reservation proposal to the Cane Commissioner (U.P.). 8. That the management committee, as constituted above, will take appropriate steps to complete the repair and required modification work in the factory for efficient operation of the plant, within time to ensure the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 TCD for which arrangement/tie-up with FI's and SDF will be responsibility of the Party of the Second Part. The scheme of expansion will be finalized and carried out under the supervision of the Party of the First Part. A scheme for better utilization of the by-products will be worked out and implemented under the new agreement to be entered separately on mutually agreed terms. 17. In consideration of technical and financial services the Party of the First Part has agreed to compensate the Party of the Second Part minimum charges of Rs. 42.5 lacs per annum every year subject to the ceiling of 20% of the net profit of the sugar division whichever is higher. 18. This agreement will be for the term of five years from the date of execution of this agreement, terminable nevertheless at the option of the either Party by giving to the other three months' notice in writing. But the Parties shall be entitled to serve notice only during the month commencing from the 1st April to 31st day of July." In that case, after analysing the terms of agreement, and this Tribunal referring to the definition of "Management Consultant" observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under 'Management Consultancy Services', and if so, liable to be taxed accordingly. The only agreement relevant for deciding this issue is the Licence Agreement entered into between LHL and IHCL dated 9-9-2002. In terms of the said agreement IHCL was required to run, develop, conduct, operate, manage, renovate and modernize and expand the hotel belonging to M/s. LHL. In terms of the said agreement IHCL was required to undertake the following operations : "16. IHCL's COVENANTS 16.1 IHCL agrees, undertakes and declares that : (a) It shall during the Term of this Agreement pay and discharge all Operating Expenses. (b) It shall use, occupy, run, operate, conduct, manage and maintain at its cost the Hotel in accordance with acceptable quality standards and make available to the Hotel professional expertise and Hotel related technology as may be required in the opinion of IHCL for a Hotel of this standard and reputation. (c) It shall not commit or do any act or deed whereby the approvals are in any way suspended or adversely affected or liable to be revoked. (d) It sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r permissions. (m) It shall pay sales tax, excise, customs, octroi and other duties, dues, levies and other statutory liabilities relating to the Hotel and its operations imposed during the Term and discharge the same provided they pertain to the period after the Appointed Date. (n) It shall pay provident fund contribution, ESIS contribution, gratuity, and tax deducted at source, and other duties, dues, levies and other statutory liabilities payable in respect of staff on the employment rolls of LHL on and from the Appointed Date. (o) It shall exercise the powers granted under the power of attorney in the best interests of LHL. (p) Whatever permissions and/or approvals required to be obtained for the purpose of implementing the terms of this Agreement will be duly obtained from time to time by it. IHCL shall take the assistance of LHL, if so required, for obtaining licenses or permissions in respect of the Hotel. (q) It shall ensure that after the expiry of this Agreement, or the sooner termination thereof, the Hotel together with the assets shall be handed over to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement. When the contract specifically provides that it shall not be construed as an agreement to lease, hire or rent, this contention of the appellant also falls flat. The concerned clause specifically reads as follows : "nothing contained in the agreement shall be construed as establishing or creating a relationship of employment, partnership, agency, lease, tenancy, sharing of profits or joint venture between the Parties hereto and nothing contained herein shall be construed as a sale, lease, transfer or disposal of the whole or substantial the whole of the undertaking of LHL and/or creating any interest in the immovable property in favour of IHCL." Therefore, the argument that the property was leased to IHCL, who were running the hotel is clearly unsustainable. 28.4 To understand the transaction better, the appellant was asked to furnish a copy of the agreement entered into with other parties where they were discharging service tax liability under the category of 'Management Consultancy Services'. One such agreement entered into with M/s. Piem Hotels Ltd. was furnished by the appellant. The said agreement provided for rendering of consultancy and advisory services by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roper cause of the termination of the rights of concessionaires and holders of privileges including shops for similar proper cause; (j) Maintenance of all books of control and accounts to be kept in accordance with the uniform system of accounts and requirements of law, (k) the granting and limiting of the credit of patrons of the Hotel in consultation with the company; (l) Generally negotiating and executing of contracts necessary or desirable in connection with the operation of the Hotel in the usual course of business, (m) The purchasing of such inventories, provisions, supplies and equipment as the Consultants and Advisors may deem reasonably necessary in order to maintain and operate the Hotel property; (n) In consultation with the company, taking of any action at law or in equity in the name of the company which the Consultants and Advisors or in the name of the company which the Consultants and Advisors shall deem necessary and proper in connection with the operation of the Hotel; (o) The making of such reasonable repairs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alterations or improvements to the Hotel shall be on account of and shall be paid for by the company out of the receipts of the Hotel." If we see the terms and conditions of the said agreement and compare the same with the terms and conditions of the agreement with LHL, the activities undertaken by the appellant in both the cases are more or less identical. Therefore, I do not understand how in respect of one agreement, the appellant could consider it as 'management consultancy service' whereas in respect of more or less identical activities carried out in terms of another agreement, the transaction ceases to be a 'management consultancy service'. 28.5 I have also perused another agreement entered into by the appellant with Oriental Hotels Ltd. wherein also the appellant was discharging service tax liability under the category of 'management consultancy services'. The activities rendered in respect of the said agreement were also similar to those obtaining in the agreement with the Piem Hotels Ltd. and in the agreement with LHL. 28.6 It is also worthwhile to note that all the employees of LHL were used by IHCL for running of the hotel and they continued to be employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandards adopted by the Legislature for determining the value may press for a broader base than that on which the charging provision proceeds." To further illustrate, when a property is rented out for a consideration, the said activity can be taxed under different laws in its different aspects. Service tax can be levied on the activity under the taxable service category of 'renting of immovable property'. The income generated from the property can be assessed to income tax for the reason of earning income from the property. Property tax would also be leviable for the enjoyment of the ownership of the property. All these different taxes can be levied as a percentage of the rental charged by the lessor of the property. The very same rental income can form the basis for levy of service tax, income tax and property tax. Therefore, the measure/quantum of the consideration received does not determine the nature of the tax. The nature of the tax is solely based on the activity rendered and whether the same falls within the taxable category or not? Therefore, the argument that, since the payment of consideration has been made to the appellant by way of share in profits or share in the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the management of any organisation in any manner would be a management consultancy service. The expressions used in the definition, namely, 'means' and 'includes', 'either directly or indirectly', 'in connection with the management' and 'in any manner' are expressions of width and amplitude and includes in their scope any service in relation to the management of any organisation. The second part of the definition is the inclusive part which provides for rendering of any advice, consultancy or technical assistance in specific areas of management. 28.11 In the case of Bharat Cooperative Bank (Mumbai) Ltd. v. Coop. Bank Employees Union, AIR 2007 SC 2320, the Apex Court observed as follows :- " ....... when the word "includes" is used in the definition, the legislature does not intend to restrict the definition; makes the definition enumerative but not exhaustive. That is to say, the term defined will retain its ordinary meaning but its scope would be extended to bring within it matters, which in its ordinary meaning may or may not comprise. Therefore, the use of the word "means" followed by the word "includes" in Section 2(bb) of the ID Act is clearly indicative of the legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any adviser who renders services on any aspect of management. They have further opined that financial advisory services rendered in merger and acquisition transactions are clearly in the nature of services in connection with the management of an organisation as merger and acquisition themselves are important dimension of modern management." 28.13 From the expert opinion given by the Indian Institute of Management, Ahmedabad (which is a premier organization in the country in management education and consultancy), it can be seen that running the affairs of an organisation in an organized, systematic manner is management and to effectively do this, it involves carrying out a host of activities, functions and tasks and at different levels. It would encompass the task such as planning, organizing, staffing, directing, controlling and coordinating and control. In other words, operational functions of an organization would clearly fall within the scope of management and if any service has been rendered in relation to the management of an organisation, either directly or indirectly, the same would fall within the definition of management consultancy service. 28.14 The second p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the services are identical. Both the services provide for rendering of advice, consultancy or technical assistance. From the above decision, it can be clearly seen that the actual operation of an organisation would also fall within the scope of "technical assistance". A more or less identical issue arose for consideration by this Tribunal in the case of HSBC Securities and Capital Markers (I) P. Ltd. [2014 (33) S.T.R. 530 (Tri.-Mum.)]. In the said case, the appellant therein also undertook executory functions in addition to advisory function. It was contended that the executory functions would not come within the scope of management consultancy service. Negativing the contention, this Tribunal held that such functions also would get covered under the definition of management consultancy service, relying on the opinion given by the Indian Institute of Management, Ahmedabad, cited supra. 28.15 A similar issue came before the Hon'ble Apex Court in the case of Central Board of Direct Taxes v. Oberoi Hotels (India) Pvt. Ltd. - (1998) 231 ITR 148 (SC). The question for consideration was whether technical services would include managerial services or not? The issue before the Apex C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. [2010 (253) E.L.T. 522 (Tri. - LB) = 2010 (18) S.T.R. 555 (Tri.-LB)] had an occasion to examine the scope of the term 'service' and held as follows :- "The term service generally means service of any description which is made available to potential user and includes the provision of facilities. Such term has variety of meanings. It may mean any benefit or any act resulting in promoting or serving interest of the recipient. It may be contractual, professional, public, domestic, legal, and statutory, etc. How it should be understood and what it means, depends in the context in which it has been used in an enactment. An activity in the nature of service whether provided individually or integrally and solely, separately or combinedly with other activities has its identity. Permutation and combination of activities or services do not change character of the activity of service. It may be possible that while an activity in a cluster of activities may be dominant others may not be prominent. But each activity has its identity, existence and independence and play its role. A plain and simple service contract or a composite contract comprising various activities of different na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court did not even examine the scope of 'management, consultancy service'. The Supreme Court merely said that since the decision in the case of Rolls Royce Indus Power (I) Ltd. was not appealed against and the same had attained finality, the present appeal would not sustain. Therefore, it cannot be said that the Hon'ble Apex Court laid down any ratio in the Basti Sugar Mills case, in the case of Rolls Royce Indus Power (I) Ltd. [2006 (3) S.T.R. 292 = 2004 (171) E.L.T. 189 (T)] referred to in the Supreme Court's order, the issue related to an agreement in which operation and maintenance of a power plant was given to the appellant therein and the said agreement did not provide for any advice or consultancy service. The question for consideration was whether the said activity would come within the purview of 'Consulting Engineer's Service' or not? It was held that the appellant therein was undertaking only operation and maintenance of the power plant for which consideration was paid and therefore, the said activity would not come under the purview of 'Consulting Engineer's service'. The Basti Sugar Mills Co. Ltd.'s case (supra) relied upon by the appellant and the Member (Judicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed either by way of clear indication in the ST-3 returns or by way of letters, it cannot be said that the assessee has informed the department of its activities. 28.21 In the present case, there is one more reason. The appellant himself was discharging service tax liability under the category of 'Management Consultancy Service' in respect of almost identical activities performed for other service recipients. Therefore, the appellant clearly knew the scope of the term 'Management Consultancy Services'. However, in respect of the contract entered into with LHL, they deliberately withheld the information to the department by non-declaration. The contracts entered into with M/s. LHL in 2002 was made available to the department only in December, 2005 after commencement of the investigation in the matter. Therefore, the time limit for issue of show cause notice starts from December, 2005, when the department became aware of the nature of the transaction undertaken by the appellant. The Hon'ble Apex Court in the case of Commissioner of Central Excise v. Mehta & Co. [2011 (264) E.L.T. 481 (S.C.)] has held that only when the department is informed in writing and the details are furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in Section 65(53) of the Finance Act, 1994. (ii) confirmation of service tax demand invoking the extended period of time in the present case is fully justified. Consequently, demand for interest also would sustain. (iii) Imposition of penalties under Sections 76 and 77 of the Finance Act, 1994 is justified as there is a default/delay in payment of service tax and also violation of the statutory provisions governing service tax. (iv) Since the matter relates to classification dispute, penalty under Section 78 is not warranted and accordingly, I set aside the same. 30. Thus, the appeal is partly allowed. Sd/- (P.R. Chandrasekharan) Member (Technical) DIFFERENCE OF OPINION 31. As both Members have a difference of opinion, therefore, Registry is directed to place the file before the Hon'ble President to refer the matter to the Third Member for deciding the following issues :- (a) Whether in the facts and circumstances of the case, the activity of running, operating and managing the entire hotel business of M/s. Taj Lands End Ltd., Bandra under a 'License Agreement', from the date of agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had given loans to IHCL earlier). The application of Rs. 452.34 crores was by way of payment, to erstwhile shareholders (74.1 crores), to LHL for acquiring fresh shares (44.50 crores); to LHL (3.00 crores) for working capital and to LHL for repayment of existing debt (330.74 crores). The name of LHL was changed to Taj Lands End Ltd. (TLEL) w.e.f. 19-3-2003. As per shareholder's agreement, IHCL was under an obligation to buy back the shares within 4 years from 9th September, 2002. From 1-4-2006, Taj Lands End Ltd. merged with the appellant (IHCL) that is, IHCL bought the entire shareholding of I-Ventures. 37. The core issue to be decided by me in the present case is whether the activity of managing the entire hotel business of LHL (later TLEL) by IHCL under the License Agreement between them during the period 1-10-2002 to 31-3-2006 would be covered under Management Consultancy Service. 38. Ld. Counsel explained the salient features of the Licence Agreement between LHL and IHCL. According to him, the owner of the assets was LHL whereas the owner of business was IHCL. The risks and rewards in the business was on IHCL's account because all invoices were issued by IHCL, reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of immovable property included the word 'license' also in its coverage only with effect from 2007 and their Agreement is a License agreement. He emphasised that Member (Technical) has, in para 28.4 of his Order, shown similarities between the present License Agreement and their Management agreement in the case of Piem Hotels without seeing the matter in context of the whole arrangement. Regarding para 28.7 of the Order he viewed that it has been wrongly concluded that what has been paid to IHCL is management fees, being sales minus expenditure, whereas actually the entire revenue is received by IHCL from operation of the Hotel and it is not receipt of management fees in the form of profit. 40. Ld. Counsel argued that as they were operating the hotel, therefore, they cannot render service to themselves. He relied on Precot Mills Ltd. - 2006 (2) S.T.R. 495 (T), Indian Oil Corpn. Ltd. - 2007 (8) S.T.R. 527 (T), Chemplast Sanmar - 2010 (19) S.T.R. 424 (T). Further, that sharing of expenses/profit cannot be treated as service for which he relied on C.B.E. & C. Circular No. 109/3/2009-S.T., dated 23-2-2009, CCE v. Pinnacle Ind. Ltd. - 2006 (1) S.T.R. 258 (T), Navinon Ltd. - 2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether in the facts and circumstances of the case, the activity of running, operating and managing the entire hotel business of M/s. Taj Lands End Ltd., Bandra under a 'License Agreement', from the date of agreements up to completion of final purchase of the hotel, would be covered under 'Management Consultancy Service' and service tax would be payable on the quantum of Gross Operation Profits earned/retained by the appellants or not. (b) Whether in the facts and circumstances of the case the demand is barred by limitation or not. (c) Whether in the facts and circumstances of the case penalties under Sections 76 & 77 of the Finance Act, 1994 are imposable on the appellant or not. 45. To decide the nature of activity undertaken by IHCL, we may first examine the plan by which LHPL were extricated from a debt trap and at the same time IHCL consented to run the hotel, through a complex arrangement of Agreements mentioned in para 4 above. The essence of the Agreements was that I-Venture (the institutional lenders) and IHCL acquired the entire shareholding of LHPL. Then the consortium of the institutional lenders, i.e., I-Venture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use 16.1(k) - IHCL will keep at its own cost the hotel building and entire premises including furniture, fittings, fixtures, etc. * Clause 16.1(l) - IHCL shall secure permissions, license or permits as may be required to carry on hotel business. * Clause 16.1(m) - It shall pay sales tax, excise, customs, etc. * Clause 16.1(n) - It shall pay provident fund, ESIS contributions, TDS, etc. in respect of staff on LHPL rolls. * Clause 16.1(q) - IHCL shall after the expiry of agreement handover the hotel together with all assets to LHL (TLEL). With due respect, I disagree with ld. Member (T) who has referred to clause 4.3 of the agreement to emphasise that service is being rendered by IHCL to LHL. The various clauses cited above have to be read in totality and not some clauses in isolation. In any case, clause 4.3 only says "in consideration of IHCL carrying on the operations of the hotel, IHCL shall be entitled to receive and appropriate the Net Sales amount". This clause does not necessarily imply that the service is being rendered by IHCL to another entity. This clause is only part of the arrangement to enable the hotel to get out of the woods in collaboration with ICICI Ventu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required if aggregate value of assets being replaced exceeds 5% of book value of LHL assets). 2. Proceeds on replacement shall be deposited in a separate account which will be managed by LHL. If the asset is replaced using the amount lying in this bank account, then the ownership will be of LHL and the same shall be charged to secured lenders. 3. If asset is replaced at IHCL's cost, then ownership will be of IHCL's. 4. Any additional asset can be brought in by IHCL at its own cost and the ownership will be of IHCL and the same shall not be charged to secured lenders. 5. On expiry of term of agreement, IHCL shall first offer to LHL to purchase the assets of IHCL at fair value within 90 days, failing which IHCL can remove such assets and take it away. IHCL has right to replace/sell any asset of LHL at its own cost. However, prior approval of LHL required if value of assets being replaced exceeds 5% of book value of LHL. IHCL also has the right to add new asset at its cost and the ownership of such asset will belong to IHCL. IHCL do not have any specific right whereby they can sell/replace the assets of the owning company. IHCL only have the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CONSIDERATION Clause 4 1. IHCL shall be entitled to receive and appropriate Net Sales amount. 2. IHCL shall pay License fees in instalments (Computed as a specified % of GOP) 3. Delay in payment shall attract interest 4. Shall be deposited after deducting TDS applicable if any, in Trust and retention account. However, if (i) The Computed license fees < Estimated Cash requirements and the difference is not settled by LHL, then to that extent IHCL shall give unsecured advances to LHL @ 11.75% p.a. interest. (ii) Subsequent license fees instalments shall be paid after adjusting unsecured advances given. (iii) Last instalment should be paid after adjusting unsecured advances and interest outstanding if any. Article 7 1. Basic Fee - Retain 5% of Gross Income. 2. Reimbursement of (i) out of pocket expenses (ii) Fees payable to outside consultants, etc. (iii) pro-rated cost of group advertising sales promotion, etc. 3. All expenses/cost incurred for maintain the hotel shall be paid by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so do not have the power to borrow any money on behalf of owning Co. without its consent. A comparison of the clauses indicates that there is essential difference in the two. The underlined portions also highlight that, in the case of Agreement with Piem Hotels, the real control of operations rested with Piem Hotels. This is not so in the present case with LHL hotel which is seen to be operated in its entirety by IHCL. The ld. AR's reliance on clause 11.1 to justify that IHCL provided service to LHL does not establish this. The clause 11.1 only states that LHL and IHCL shall, from time to time, hold discussions to formulate strategies to be adopted for increasing the business of LHL and IHCL shall keep LHL informed generally of the activities carried on by IHCL at the hotel. Mere holding of joint discussions between two entities does not mean that one entity is providing service to the other. Even reporting of activities by IHCL to LHL does not mean that a service is necessarily being rendered; it only reflects mutual financial interest and involvement of both entities in the running of the hotel by IHCL. Therefore, the two agreements are critically different and the Agreement wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se agreement will be termed as provision of management consultancy service, etc., which is obviously not correct. Reliance is placed on the CESTAT judgment in the case of B.S.R. & Co. v. Commissioner of Service Tax, Gurgaon - 2013 (30) S.T.R. 242 (Tri.-Del.) in which Tribunal held that only services in the nature of providing consultancy or advices for improving the Management of a business entity only will be covered by the definition and not executory type of responsibilities of management got done through another agency. Even the Board Circular (supra) indicates that it is advisory services which are includible under the taxable service rendered by a management consultant. Board's Circular states "taking into account all the above points, the board has taken a view that merger, acquisition and other form of restricting or business organization have emerged as key element in the modern management and as the term 'management' covers the various functions and the multifarious activities required for efficient and effective functioning of an organization, any advisory services rendered in merger and acquisition transaction are also includible under the taxable service rendered by 'm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f says "....LHL is the true and legal owner of the Hotel (as defined hereinafter) and the related assets situated at CTS Nos. B/899A Byramjee Jejeebhoy Road, Bandra, Mumbai. ....... The parties have agreed that for their mutual benefit and for the consideration mentioned in this Agreement, IHCL shall run, develop, conduct, operate manage, renovate, modernize and expand the Hotel and carry out all activities incidental and ancillary to the business of hoteliering or otherwise (the "Operation of the Hotel") as appropriate upon the terms and conditions recorded herein ....". The above portion of the Agreement makes it abundantly clear as to what the true and only actual purpose of the Agreement is. The Agreement states unambiguously that, for mutual benefit, IHCL shall run, develop, conduct, operate manage .... carry out all activities of running the hotel. The ld. Counsel has rightly placed reliance on the judgments cited in para 6.2 while contending that they cannot render service to themselves and that sharing of expenses/profit cannot be treated as a service. 54. For all the reasons stated above, in my view, the activities of IHCL in operating the hotel cannot be called as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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