TMI Blog2008 (4) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Deputy Commissioner of Central Excise, Division K III, Mumbai IV. The Deputy Commissioner, vide his order dated 23.2.05, confirmed the demand notice issued to the appellants amounting to Rs 4,89,65,321/- under Section 73 (1)(a) of the Finance Act, 1994; He imposed a penalty of Rs 500/- under Section 75A of the said Act for failure to obtain registration under Service Tax; He also levied interest @ 18% p.a. from 16.10.98 to 16.8.01, @24% upto 16.8.02 and 15% p.a. w.e.f. 17.8.02 for the period by which the credit of the said Service Tax is delayed as provided under Section 75 of the Act ibid; The appellants were also directed to pay in addition to paying Service Tax. and interest as above, a penalty of Rs 200/- for every day during which such failure continues so however that the penalty under this clause shall not exceed the amount of Service Tax not paid as provided under Section 76 of the Act, ibid; He also imposed a penalty of Rs 1000/- under Section 77 of the Act ibid for failure to file return in Form ST-3; He also imposed a penalty of Rs 4,89,65,321/- under Section 78 of the Act ibid. 2. Heard both the sides and perused the records. 3. The issue involved i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the essential attribute of a management consultant, in the ordinary parlance, is that it is an outside entity, objectively and impartially advising his clients, having gained expertise and experience in advising in diverse fields. Secondly, he is a person working for a profit. They stated that they are a part of RPG group and not an outsider. They advise their group companies only and that too by joint discussions. Also costs and expenses are shared between the licensees and there is never an attempt made to earn profit. Such an entity, according to them, can never be described as a management consultant in ordinary parlance at all. (v) (a) Principle of mutuality "No person can render service to itself" A mutual concern, while deals only with its members, though may be a separate legal entity, is rendering service to itself, when it services its members and hence is not liable to service tax; (b) That the service provider and service receiver are separate legal entities is irrelevant, if mutuality exists. This is laid down by the Hon'ble Supreme Court in the case of Young Men's Indian Association, Madras and Others reported in 1970 (26) STC 241; (c) For the mutuality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in 2007 (8) STR 170 (Tri-Bang); (c) Padmini Products vs CCE reported in 1989 (43) ELT 195 (SC); (d) Tamil Nadu Housing Board vs Collector 1994 (74) ELT 9 (SC). 5. In the light of the above submissions, the appellants prayed for setting aside the impugned order passed by the Commissioner (Appeals) and allowing the appeal, with consequential relief. 6. The learned Joint C.D.R. took us through the various portions of the orders passed by the lower authorities below to high-light that the appellants are nothing but Management Consultant only and they are rendering management consultancy services to their dedicated clients and are liable to service tax. According to him, the demands have been rightly confirmed and the penalties correctly imposed. 6.1 He stated that the contention of the appellants that they run on "No profit, No loss" basis and only recover cost from the licensees and hence service tax is not payable is irrelevant and out of context. In indirect taxes like Central Excise, Customs, Service Tax, leviability/chargeability is unconnected with Profit or Loss. So long as the taxable service is provided and received and the taxable value is collect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is without basis. Nowhere, the appellants have shown that the Service Receivers are subsidiary companies of M/s RPG or are controlled by M/s RPG. The fact is that all the companies are independent companies individually registered under the Companies Act. Commonality of a stray director or a promoter is of no relevance in the present context; (d) The agreement entered into by the appellants and Service Receivers are purely commercial contracts and there is no dispute on that. (ii) As regards, the principle of Mutuality and the case laws cited by the appellants in this regard, the learned Jt C.D.R. maintained that they are not applicable to the facts of the present case and are distinguishable. (iii) He stressed that the extended period is invokable, as the appellants never brought to the notice of the Department any of the activities undertaken by them and never corresponded to obtain any clarification or opinion from the Department. Bona-fide belief is not blind belief. There is no basis or foundation established of Bona-fide belief. He relied upon the following judgements in support. (a) 2005 (191) ELT 1051 Winner Systems vs CCE Cus, Pune in which it has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ives of the company include to form, operate and run an organization for providing to the said licensees infrastructure and administrative set up for promoting, supervising and monitoring such industrial, commercial and trade practices as are conducive to the attainment of excellence in quality of their products and services (with the continuous striving for upgradation of their standards) inculcating virtues of social responsibilities and thereby enhancing the value of business to society. With a view to assisting the said licensees in upgrading their efficiency and availing of the benefit of mutual experience to develop a suitable organization for the following: i) To identify business opportunities in India and /or abroad and extend professional expertise in technology assessment and business evaluation ; ii) To develop and provide a pool of general economic and industrial intelligence information in diverse areas including finance, taxation, legal, insurance, risk management , data processing, information, systems, marketing, drafting, leasing agency and public relations; iii) To develop a cadre of managers and make available management expertise; iv) To develop a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of M/s RPG Enterprises Ltd are very clear as to what are the activities carried out by them. M/s RPG have, as per their objectives, to act as management consultants in finance and other fields providing advisory services, consultancy in various fields, etc. All these activities would, without doubt, come under the 'Management Consultancy Services'. 9. It is not disputed by the appellants that they have received an amount of Rs 8.22 crores from M/s CEAT Ltd., and other sums from other companies towards the contribution in terms of the agreements between M/s RPG and M/s CEAT Ltd others. It is also not disputed by the appellants that they have provided assistance and services to M/s CEAT Ltd., and others. The appellants' dispute is on the question as to whether rendering of the services by them to the licencees is in the nature of the management consultancy services. 10. (a) M/s RPG Enterprises Ltd., have rendered management consultancy services to M/s CEAT Ltd., and others and have received licence fees from various limited companies for giving consultancy advice. This is an admitted fact and is also reported in their balance-sheet as income; (b) In the proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also streamline the movement of stock between the different geographical locations which helped CEAT Ltd. to satisfy the requirement of each region with a minimum level of inventory. This also resulted into considerable savings to the Company. 3. Strategic Planning Business Evaluation and Planning for long term business strategies. Assisting licensee companies in developing rolling strategic plan. Conducting meets on "KIPs" i.e. Knowledge, Information and Practices, Management of Working Capital, Bench for Global Competitiveness etc. '4. Forex Management: During 1999-2000, RPG Enterprises conducted a detailed study of the Foreign Risk Management of the various companies including CEAT Ltd. It was observed that the Forex Risk Management required precise guidelines for management of the exposure on Forex. In order to help the companies a Forex Management Manual was brought out by RPG Enterprises and was circulated to all the companies including CEAT Ltd. In addition to this, there are regular Forex Advisory Circulars being sent to the companies giving the advices on the positions to be taken on Forex Exposure on imports and exports by the Companies. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s.CEAT Ltd have received advice, consultancy from M/s RPG in the field of organization efficiency, 'Corporate Financing System' and because of modification rectification of the system, their credit rating with banks, financial institutions and other lending agencies has improved and interest cost has come down. M/s CEAT Ltd have admitted that due to the technical assistance and advice of M/s RPG, their Management Information System (MIS) and Inventory Management System have improved and the same has resulted in considerable savings to M/s CEAT. Similarly, M/s CEAT have admitted that they have benefited by advice and technical assistance from M/s RPG relating to development, improvement/ modification of Strategic Planning System Forex Management and HRD and have benefited financially. M/s RPG send them Regular Forex Advisory Circulars also. This clearly shows that M/s RPG's advice, consultancy and assistance are directly in connection with the management of the recipient companies in regard to devising, development, upgradation, modification etc of their working system. Therefore, the services rendered by M/s RPG are in the nature of management consultancy. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) Dalhousie Institute vs A.C. Service Tax reported in 2005 (180) ELT 18. In Chelmsford Club vs CIT, Delhi, the Hon'ble Supreme Court has held in para 14 as under: "From the above extract of the judgment, it is crystal clear that the law recognises the principle of mutuality excluding the levy of income tax from the income of such business to which the above principle is applicable. In the above case, this Court quoted with approval the three conditions stipulated by the Judicial Committee in the case of English Scottish Jt. Coop. Wholesale Society Ltd. v. CIT (Ag) ((1948) AC 405, 419 : (1948) 2 All ER 395 (PC)) (AC at p. 419) the existence of which establishes the doctrine of mutuality. They are as follows : "(1) the identity of the contributors to the fund and the recipients from the fund, (2) the treatment of the company, though incorporated, as a mere entity for the convenience of the members and policyholders, in other words, as an instrument obedient to their mandate and (3) the impossibility that contributors should derive profits from contributions made by themselves to and which could only be expended or returned to themselves." In Saturday Club C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no question of two sides. 'Members' and 'club' both are same entity. One may be called as principal when the other may be called as agent, therefore, such transaction in between themselves cannot be recorded as income, sale or service as per applicability of the revenue tax of the country. Hence, I do not find it is prudent to say that members' club is liable to pay service tax in allowing its members to use its space as 'mandap'. We are of the opinion that the Principle of Mutuality and the above referred judgments are not applicable to the facts of the present case because of following reasons: (a) M/s RPG have entered into Non-Exclusive Licensing Agreements with other companies e.g. M/s CEAT Ltd. Both the contracting parties viz M/s RPG and M/s CEAT Ltd etc are two independent legal entities and independent registered companies under the Companies Act. (b) The relation between the two contracting companies is not of Principal and Agent, which was present in the cases of Chemsford Club, Dalhousie Institute, Saturday Club etc. Here the Licensing Contracts were entered into and the relationship is client-consultant relationship. (c) It does not fulf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of context, if done so then every person some way connected with an advertisement will be advertising agency. That cannot be and is not the coverage of the Service Tax envisaged. In the present case, one cannot ignore term being defined i.e., 'advertising agency' and proceed to levy service tax on (i) any commercial concern (ii) providing service connected with making, preparation, display or exhibition of advertisements. If the definition is read in isolation and in an all encompassing manner out of context, then any person/company employing cameraman connected with shooting of advertisement film will become an advertising agency. A caterer supplying tea and biscuits during the production of advertising film will also become a person connected with preparation of advertisement and became an advertising agency. Similarly, a lawyer advising whether advertising film will be violating copyright law or other laws relating to obscenity etc. would be treated as advertising agent. Similarly a broadcaster (on radio or television) of an advertisement will become an advertising agency, or a cinema hall flashing an advertisement or newspaper/magazine publishing an advertisement will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retrospectively. The demand in the present case relates to the period from 1998-99 to 2001-2002. 15. The Appellants contention that in view of the solicitor's opinion in 1989, which was not disputed by the Auditors or the Registrar of Companies, they entertained a bona fide belief that they are not liable to service tax, does not appear to be convincing. Bona-fide belief is not blind belief. The ratio of the various case laws cited by the learned Jt C.D.R., as referred to in para 6.4 (iii) above for invoking extended period are rightly applicable to the facts and circumstances of the present case. The appellants suppressed the vital information from the Department with intent to evade payment of Service Tax. We uphold the order of the Commissioner (Appeals) confirming the demand of Service Tax together with interest. 16. Even a cursory glance through their Memorandum of Association will show that what they were rendering is nothing but the management consultancy service as defined in the Finance Act, 1994. Once the management consultancy service was brought in the statute book and the management consultants were included within the definition of the service provid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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