TMI Blog2017 (12) TMI 1653X X X X Extracts X X X X X X X X Extracts X X X X ..... ery was made from the client - section 66 of the Finance Act,1994 - time limitation. Held that:- As per subsection 4 of section 66, service tax can be levied at the rate of 5% of the value of the taxable services. Sub clause (r) of clause 48 of section 65 provides that the taxable service means any service provided to a client by management consultant in connection with the management of any organization in any manner. Section 67 deals with the valuation of taxable service for charging service taxes. Clause (q) of section 67 provides that in relation to service provided by management consultant to a client, the valuation of taxable service shall be on the basis of the gross amount charged by the such consultant from the client for services rendered in connection with the management of any organization in any manner. Thus, the service tax is required to be charged on the gross amount charged by the management consultant to his client. The case of the appellant is that to enable the appellant to render service to its client, it was necessary for the client to submit necessary data. As the client did not provide the data, the appellant was required to borrow the said data from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ) 1 With a view to appreciate the submissions made across the bar, it will be necessary to make a note of the factual controversy. According to the case of the appellant, it is a branch in India of a company McKinsey and Company Inc, USA'. The appellant is engaged in providing management consultancy services in India and it is registered as a management consultant for the purposes of service tax. 2 On 19th March 2002, a show cause notice was issued to the appellant alleging that the appellant had made contravention of the provisions of section 68 of Chapter V of the Finance Act,1994 read with Rule 8 of the Service Tax Rules. The breach alleged was in respect of six half yearly returns for the periods ending March 1999, September 1999, March 2000, September 2000, March 2001 and September 2001. A demand was made for interest and penalty. 3 Generally, before commencing assignment, the appellant has a written understanding with its clients specifying the nature of services and the consultancy fees for the same. Agreement typically narrates the nature of expenses that may be incurred incidental or ancillary to providing consultancy services that would be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anded from the appellant for the period between 16th October 1998 to 31st March 2003. By the show cause notice, total service tax amount of ₹ 7,34,61,476/( ₹ 1,78,41,921/plus ₹ 4,46,37,777/plus ₹ 1,09,81,778/) was demanded. Interest and penalty under sections 75, 76 and 78 were also proposed. 7 After a reply was submitted by the appellant, the show cause notice was adjudicated upon by the Deputy Commissioner who confirmed the entire demand of service tax along with interest and penalty. 8 The appeal preferred by the appellant before the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench, Mumbai (for short CESTAT') was decided by the impugned judgment and order. Following issues were considered by the CESTAT: ( 1) Disallowance of abatement of traveling, lodging and boarding expenses on account of insufficient documentary evidence. ( 2) Liability to pay service tax on miscellaneous expenses incurred on items other than traveling, lodging, boarding and described an infrastructural and establishment expenses. ( 3) Liability to service tax in respect of payments received in foreign exchange ( 4) Liability to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht in upholding the demand of Service Tax of ₹ 1,09,81,778/? 11 The learned senior counsel appearing for the appellant submitted that taxable event for the purpose of levy of service tax is the service rendered within the territory of India except territory of Jammu and Kashmir. He pointed out that the appellant had remitted total amount of ₹ 89,27,55,541/to the overseas of entities for expenses on core documents and borrowed service charges. Out of the aforesaid amount, an amount of ₹ 21,96,35,580/was recovered by the appellant from the clients in India. He pointed out that the demand on this aspect has been set aside. However, the Tribunal has upheld the liability of the appellant to pay service tax on the expenses incurred on core documents and borrowed service charges for which recovery was made only by the appellant from the clients. The learned senior counsel submitted that irrespective of the normal location of the service providers or service receivers, levy of service tax can be made when the service is rendered in India, the even if the service providers do not have offices in India. He, therefore, submitted that if the service is rendered outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for the arranged services. He submitted that the amount recovered from the customers is in the nature of reimbursement of expenditure and is not for providing services. He placed reliance on the decision of Calcutta High Court in the case of Commissioner of Income Tax vs. Dunlop Rubber Company Limited [1983] 142 ITR 493 (Calcutta). Alternatively, he urged that the charges will also quantify as deduction on account of OPE. 13 He relied upon subclause (r) of clause 105 of section 65 of the Finance Act,1994. He submitted that the service involved in the present dispute is merely in the nature of an arrangement for procuring information/data available with the agency from which it has been borrowed. The appellant did not undertake any analysis which could be used in connection with management of any organization and therefore, cannot be levied in the taxable category of management consultancy services. Lastly, he submitted that in view of the aforesaid submissions, even issue of limitation will have to be reconsidered by passing an order of remand. 14 The learned counsel for the respondent supported the impugned Judgment and Order and submitted that the impugned Judgment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kinsey entities. 18 In this case, we are concerned with the provisions of section 66 of the Finance Act,1994. As per subsection 4 of section 66, service tax can be levied at the rate of 5% of the value of the taxable services. Sub clause (r) of clause 48 of section 65 provides that the taxable service means any service provided to a client by management consultant in connection with the management of any organization in any manner. Section 67 deals with the valuation of taxable service for charging service taxes. Clause (q) of section 67 provides that in relation to service provided by management consultant to a client, the valuation of taxable service shall be on the basis of the gross amount charged by the such consultant from the client for services rendered in connection with the management of any organization in any manner. Thus, the service tax is required to be charged on the gross amount charged by the management consultant to his client. The CESTAT has recorded following finding on this aspect. ... Core documents and other borrowed services are essentially one which form necessary input for providing the management consultancy services. When a client engage Mc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be the gross amount charged by such consultant from the client for services rendered in connection with the management of any organization in any manner. As stated earlier, under subclause( r) of clause 48 of section 65, service provided to a client by a management consultant in connection with the management of any organization in any manner is a taxable service. We have already referred to clause 21 of section 65 of the Finance Act,1994 which defines management consultant. It includes a person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organization in any manner. A management consultant includes any person who renders any advice, consultancy or technical assistance, in relation to financial management, human resources management, marketing management, production management, logistics management, procurement and management of information technology resources or other similar areas of management of any working system of any organization. As narrated earlier, we are dealing with the expenses incurred on core documents and borrowed service charges for which recovery was made from the client. The claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diction which is not in existence. The entire thrust of the submissions of the learned counsel for the appellant is on the fact that the amount recovered from the clients was not for rendering any services in India. Therefore, the decision of the Apex Court in the case of the Commissioner of Income Tax vs. Ahmedbhai Umberbhai Company (supra) relied upon by the appellant has no application. 22 The other contention which was canvassed was that the appellant has merely arranged services of their foreign entities for and on behalf of their clients and the consideration for making such arrangement is already included in the consultancy fees. This contention based on factual assertions has not been canvassed before the Appellate Tribunal. Therefore, reliance placed by the appellant on the decision of the House of Lords in the case of Custom and Central Excise Commissioner vs. Plantiflor Limited (supra) has no application. 23 The contention sought to be raised is that the amount recovered from the customers is in the nature of reimbursement of expenditure and not for providing of service. This factual contention is not agitated before the Tribunal as there is no reference to the s ..... 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