Custom, Excise & Service Tax Tribunal
Dsp Merrill Lynch Limited vs Commissioner Of Service Tax, Mumbai on 20 October, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. Appeal No. ST/46/2010-Mum and Appeal No. ST/57/2010-Mum (Arising out of Order-in-Original/Order-in-Appeal No. passed by the Commissioner of Customs & Central Excise ) For approval and signature: Honble Mr. P.S.Pruthi, Member (Technical) Honble Mr. Ramesh Nair, Member (Judicial) ============================================================
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : No
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
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DSP Merrill Lynch Limited
:
Appellant
VS
Commissioner of Service Tax, Mumbai
AND
Respondent
Commissioner of Service Tax, Mumbai
VS
Appellant
DSP Merrill Lynch Limited
:
Respondent
Appearance
Shri Shri Rohan Shah, Advocate with
Shri Anay Vanhati, Advocate for Appellant
Shri Roopam Kapoor, Commissioner (A.R) for respondent
CORAM:
Mr. P.S.Pruthi, Member (Technical)
Mr. Ramesh Nair, Member (Judicial)
Date of hearing : 20/10/2015
Date of pronouncement : 11/01/2016
ORDER NO.
Per : P.S. Pruthi
Appeals arise from Order-in- Original No 16/STC/BR/0910 dated 19-11-2009 passed by the Commissioner Service tax. M/s DSP Merrill Lynch Ltd (DSP for short) are the appellant in the first appeal against the demand of service tax amounting to Rs. 2,65,9 1,471 on advisory fees, retainership 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 Rs 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 appellants 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 Merchant Banking Services (MBS) and Mergers and Acquisitions (M&A) services are concerned. He related the history of the issue with the list of dates against each event as detailed below:
LIST OF DATES AND EVENTS S.No. Date / Period Details of event
1. 16.10.1998 Introduction of Service tax category of Management Consultancy Services (MCS) Proceedings No. 1
2. 30.11.1999 Service Tax Authorities issued a letter demanding Service Tax payment on M&A Advisory services for the period 16th Oct 1998 to 31 Mar 1999 pursuant to CERA Audit
3. 11.01.2000 Certificate from Kanu Doshi, a CA clarifying that M&A advisory and Merchant Banking services do not constitute "Management Consultancy" services
4. 30.11.1999, 12.1.2000, 01.03.2000 Letters from Service tax Commisionerate, asking to pay Rs. 31.73 lakhs under the category of MCS, for activities undertaken by DSPML in relation to mergers and acquisitions
5. 01.02.2000 DSPML approached DGST for clarification on applicability of Service Tax on M&A services
6. 20.04.2000 DGST clarified that Service tax is applicable on M&A services
7. 16.06.2000 DSPML filed Writ Petition No. 1257 of 2000 before Bombay High Court challenging the liability of Service tax on M&A services
8. 07.11.2000 Bombay High Court disposed of the petition directing the CBEC to issue clarification under Section 37B of the Central Excise Act
9. 08.12.2000 Director General of Service Tax sought details from DSPML 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 Rs. 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 vide above SCN
17. 19.08.2002 DSPML filed appeal from above Adjudication Order to the Commissioner (Appeals)
18. 31.12.2002 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 S.No. Date / Period Details of event
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 DSPMLs 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 DSPMLs 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 DSPMLs 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 demand of Rs. 2,65,91,471 and dropping Service tax demand of Rs. 5,92,62,123
30. 04.02.2010 DSPML preferred appeal to the Tribunal challenging above Order-in-Original to the extent it confirmed levy of Service tax of Rs. 2,65,91,471
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 Rs. 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 [email protected] 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 merchant banker being registered with the SEBI. It was also informed that they are registered with SEBI as a stock broker and an underwriter. Therefore, there was no concealment of their activities which are stated by the Department to be covered under Management Consultancy Services, Underwriting services and Stock broker services. In their letter to the DG Service Tax, they had enclosed their letters addressed to M/s L & T, Digital Equipment(India) Ltd and other companies expressing their consent to act as exclusive financial advisors. On an observation from the Bench that department may have been constrained not to issue the show cause notice till the decision of the Board conveyed under CBEC Order No. 1/1/2001-ST dt. 27.6.2001, in view of the High Court Order dt. 7.11.2000 directing Board to issue directions under Section 37B within four months from today. Department not to act till Board decides, the Ld.Counsel drew our attention to the Writ Petition filed before the High Court by them in which the prayer was only to, inter alia, not to recover any service tax or 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 appellants had not produced any evidence which indicates that they had any doubt or they approached the departmental authorities 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 date of first suppression.
5. At first glance the case seems to be badly time barred in view of the fact that the demand for the period October 1998 to March 1999 was held to be time barred by the Tribunal in its Order appearing at 2007 (7) STR 59 (Tri.-Mumbai). But on a close reading of the judgment we find that it was delivered on the basis that the High Court had directed CBEC to clarify the position, which was done in June 2001. In the circumstances, it was held that respondent could not have known that the services rendered were in the nature of Management Consultancy Services. We find that in the case of Steel Cast Ltd (supra), the invocation of longer period of limitation was rejected on the ground that a lot of confusion prevailed on the relevant issue during the relevant time. The facts in the present case are at variance with the facts in the judgements cited. Here we find that, amongst many petitioners who may have represented to the Board in pursuance of the High Court Order 07.11.2000, one petitioner were the appellant. In pursuance to the High Court Order, 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 reason that even if activities are rendered by the appellant, the department does not know whether the activities 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 service tax payment is such that department can check the factum of value of services only from what is declared in the ST-3 returns. In the present case the fact that services having value were rendered became known to the department only when audit was conducted in 2002 and it was then discovered that the appellant had failed to declare the value of services rendered during the period April-June 2000. Therefore, the judgments cited by the Ld.Counsel cannot be relied upon in the facts of the present case.
5.1. The judgement in the case of HSBC Securities and Capital Markets(I) P Ltd was delivered in a similar context. The relevant portion of the judgment is:
We have gone through the said order. It appears that a public notice was issued on 18-2-2001 and in response to that certain agencies have represented and it is in that context that the said order was issued to clarify the doubts of such agencies. Appellants have not produced any evidence which indicate that they had such doubt and for they have approached the departmental authorities for clarification about their 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 Boards 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 record that the said services were not provided even prior to April 2000. Further the value of services for 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 circular 37 states that MBS provided under an Act or regulation shall not be liable to service tax under management consultancy services. The next contention is that a new service entry of Banking and other Financial services was proposed to be introduced in the budget of 2001. The TRU circular F.No. B 11/1/2001 clarified that new entries were introduced w.e.f from 16.07.2001 to bring to tax new assessees. The judgements below have held that where a new service tax entry is introduced without amendment to an earlier entry, then the activity specifically covered under the new service tax entry are brought to tax only with the introduction of such new service tax entry
1) Glaxo Smith Kline Pharmaceuticals Ltd versus CCE 2005 (188) ELT 171 (TRI Mum)
2) Indian National Shipowners Association versus UOI 2009 (14) STR 289 (BOM)
3) Commissioner of Central excise versus Sundram finance 2007 (7) STR 55 (TRI Chennai) 6.2 On the M&A services he submits that the Commissioner held the demand to be time-barred. On merits he submits that the services are not covered under the management 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 Commissioners 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 (supra) is erroneous as various judgements have not been correctly considered in this case and therefore it is a decision per incuriam. He relies on the Honble 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 services which pertain to miscellaneous income, that is, write back of credit balances in payable accounts, recovery of expenses, insurance claims, bad debts etc, sale of scrap, old newspapers etc. These are not liable to service tax under the Stock Broker services.
7. The learned Commissioner(AR) submits that on merits the case is squarely covered by the decision of the Tribunal in the case of HSBC Securities and Capital Markets (supra) in respect of the following services namely, Advisory services, Merchant Banking services, Retainership Advisory services, Mergers and Acquisition services. His contention is that if a service is covered specifically under the scope of another service at a later date, it does not mean that it was not covered under the scope of the earlier service. What is important is to determine whether the service being provided is covered under the definition of the earlier service. He invites reference to the letter of JS (TRU) dated 28.02.2006 stating that some newly specified services may also contain services which are presently covered under some of the existing services. 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 was confirmed under three categories of services namely Management Consultancy services, 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 organization or business in any manner and 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;] 65 (10)?Banking and other financial services means, the following services provided by a banking company or a financial institution including a non-banking financial company, namely -
(i) financial leasing services including equipment leasing and hire-purchase by a body corporate;
(ii) credit card services;
(iii) merchant banking services;
(iv) securities and foreign exchange (forex) broking.
(v) Asset management including portfolio management, all forms of fund management, pension fund management, custodial depository and trust services, but does not include cash management.
(vi) Advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring 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 section shall not apply with effect from 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 (supra) and Indian National Shipowners Association (supra) clearly support the view that the service would fall under the category of Banking services as there was no change in the definition of Management Consultant Service after the introduction of the new levy. Such introduction clearly points to the legislative intent to levy tax on the new entry from the date of its introduction. This was the principle upheld by the Honble Mumbai High Court in the case of India National Shipowners Association. The Honble High Court held that Introduction of new entry and inclusion of certain services in that entry would presuppose that there was no earlier entry covering the said services. Therefore, prior to introduction of entry (zzzzj), the services rendered by the members of the 1st petitioner were not taxable. Creation of new entry is not by way of amending the earlier entry. It is not a carve out of the earlier entry. Therefore, the services rendered by the members of the 1st petitioner cannot be brought to tax under that entry. In our considered view the very term management consultancy refers to a consultancy regarding the affairs of an organization and not to activities of merchant banking which find specific mention in the definition of banking services. Reliance is placed on the Honble 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 III.
15. The obvious legislative 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 in the case of Merchant Banking Services would hold in this case also.
8.4. 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. The requirement to publish the consolidated financial statement is a statutory requirement on the basis of a listing agreement with SEBI. The Commissioner has rightly held that nowhere it is alleged that the appellant received the said amount. The reliance is placed by Revenue on 96/7/2007-ST dt. 23.8.2007 is incorrect. The circular does not relate to the issue at hand. The circular merely clarifies that sub-contractor of a contractor is essentially a taxable service provider 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 Governments 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 which service tax 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. Commissioner of C. Ex. New Delhi 2011 (21) STR 119 (Tri.-Del.) wherein it was held that?There can hardly be any quarrel about the proposition that introduction of specific entry does not mean that the subject covered by the specific entry was not covered by general entry prior to the introduction of specific entry. But that is not the case in the matter in hand. In our case, the earlier entry speaks of Business Auxiliary Services of the client, whereas the subsequent entry speaks of display of logo per se to be amounting to promotion and advertisement of the business activity of the client. In relation to the earlier entry, the activity conducted by the service provider should disclose promotion and marketing of the service rendered by the service recipient to the others and there must be tangible evidence to establish the same. In case of subsequent entry mere fact of display of logo of the service recipient would lead to presumption about promotion and advertisement of the business of the client. Such a presumption is not available in case of earlier entry. However, we find that in the case of Indian National Shipowners Association, the Honble Mumbai High Court held that the introduction 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 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 itself is being continued, but the portion of the staff or labour is discharged as surplusage. In view of the above ordinary acceptation, the Supreme Court held that termination of services of all the workmen as a result of closure of business cannot be properly described as retrenchment. By applying the above guidelines, it can not be held that BCCI is an advertising agency. In the 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, Tribunal has observed that the definition of advertising agency cannot be read literally and out of context, if that is done, every person in some way or the other connected with advertisement will be an advertising agency. Any interpretation leading to absurdity has to be avoided.
15.?Our above view also gets support from the fact that another head of sale of space or time for advertisement and sponsorship services stands created for the purposes of service tax w.e.f. 1-5-06. However, the taxable services in relation to sponsorship services specifically excluded sponsorship of sport events. As such, we find that a subsequent entry having been enacted covering the 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 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 Revenues 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 demand is hit by time limitation and the case could be decided on this basis alone.
14. Appeal of appellant DSP Merrill Lynch Limited is allowed. Revenues appeal is dismissed.
(Pronounced in court on 11/01/2016)
(Ramesh Nair)
Member (Judicial)
(P.S.Pruthi)
Member (Technical)
SM.
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