Customs, Excise and Gold Tribunal - Delhi
Telephone Cables Ltd. vs Commissioner Of Central Excise on 12 February, 2007
Equivalent citations: [2007]11STJ15(CESTAT-NEW DELHI), 2007[7]S.T.R.657, [2007]9STT311
ORDER C.N.B. Nair, Member (T)
1. The appeal is directed against the service tax demand. That demands has been made by treating the appellant as a management consultant in regard to income received. The income received were mentioned in the Balance Sheet as (1) Consultancy income Rs. 45 lakhs (2) Income from services rendered Rs. 1.42 crores
2. These were Balance Sheets for 1998-99, 1999-2000. During the Adjudication proceedings, the appellant stated that income was not received from services rendered to M/s. Innovative Textiles Pvt. Ltd., New Delhi in regard to certain exports of Textiles. It was the contention of the appellant that this was an agreement for collaboration in the export of fabrics and that there was no consultancy involved in both. The contention of the appellant was rejected and tax demand made. The appellant took up the matter before the Commissioner (Appeals); that appeal was also rejected. The present appeal is directed against the order of the Commissioner.
3. We may first note the definition of management consultancy service in the statute.
management consultant" means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organization in any manner and includes any person who renders any advice, consultancy or technical assistance, relating to conceptualizing, devising, development, modification, rectification or upgradation of any working system of any organization.
4. Now we may also read the agreement between the parties to see whether the agreement partakes all the requirement under the definition of management consultancy service.
1. All our export indenting business till 31st October, 1999 will be conducted in collaboration with your group.
2. Your group will be responsible for handling all matters related to sourcing of material for export from all the mills in India and will undertake following jobs:
a) Price negotiations with mills
b) Quality monitoring
c) Monitoring of delivery schedules from mills
d) Liaison with transporters used by mills for despatch of export material
e) Settlement of quality or shipment disputes with mills on behalf of customers.
Alongwith above specific jobs all other matters relating to sourcing will be handled by your company and all expenditure incurred on correspondence, travel, communications and couriers etc. will be borne by your company.
3. Our company will be responsible for selling of material in overseas markets and will undertake following jobs:
a) All arrangements for selling of material in overseas markets and for opening of L/Cs for export of material by mills.
b) Liaison with transporters at Boarder for export of material of mills.
c) Arrangement of acceptance advises and payment advises for documents of mills.
d) Maintaining relations with overseas buyers for better sales.
e) Collection of export commission from mills.
Along with above jobs all matters related to selling of material and collection of commission from mills will be handled by M/s. Innovative Textiles Pvt. Ltd. and all expenses related to execution of above responsibilities will be borne by M/s. Innovative Textile Pvt. Ltd.
4. All commission received from mills by M/s. Innovative Textiles Pvt. Ltd. will be shared 50% each by both M/s. Innovative Textiles Pvt. Ltd. and M/s. Telephone Cables Ltd.
5. M/s. Telephone Cable Ltd. will submit debit Notes to M/s. Innovative Textiles Pvt. Ltd. on the basis of commission received statement provided by M/s. Innovative Textiles Pvt. Ltd. to M/s. Telephone Cables Ltd. and payment will be made by demand draft.
6. All disputes in the above agreement will referred to mutually agreed arbitrator and decision will be binding on both parties.
7. This agreement is subject to jurisdiction of Delhi Courts.
5. The service rendered by a management consultant, according to the definition has to be "in connection with the management" of any organization. It also includes advice consultancy or technical assistance relating to conceptualizing, devising, development, modification, rectification or upgradation of any working system of any organization"
6. While all the above services are recognized in the statue as management consultancy, of the agreement between the parties, as made clear by the clauses already reproduced, is for collaboration. That collaboration is in relation to sourcing and export marketing of cotton yarns. Para 2 of the agreement lays down the responsibility of one party (the appellant) and Para 3 lays down the responsibility of the other party. It is clear that the appellant's responsibility are in the areas of handling maters related to sourcing of material for export from all the mills in India. Sub-clause (a) to (e) of Para 2 mentions in detail the components of that service. Para 4 of the agreement stipulates that the commission received from mills by M/s. Innovative Textiles (P) Ltd. will be shared. It states that the present appellant shall receive 60% of the commission for the role played by it.
7.1 A reading of the clauses of the agreement makes it clear that none of this collaboration agreement contain any of the elements of management consultancy. They do not relate to management of any organization. They also do not relate to advice, consultancy or technical assistance in any area. It is a partnership to help the customers to carry out exports. That is, carried out by obtaining orders, procuring materials and finding foreign buyers and none of these activities can be called any type of consultancy or advice.
8. In view of what is noted above, we are of the opinion that the relationship between the parties is not that of a consultancy arrangement. Therefore, the tax demand made, by treating the appellant as a management consultant is not sustainable. Once the tax demand is not sustainable, question of penalty would not arise.
9. In the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any, to the appellant.
(Pronounced in the open Court)