Custom, Excise & Service Tax Tribunal
M/S Kotak Mahindra Capital Co. Ltd vs Commissioner Of Service Tax, Mumbai-I on 3 February, 2016
IN THE CUSTOMS, EXCISE AND SERVECE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT NO. I APPEAL NO. ST/348/11 (Arising out of Order-in-Appeal No. MI/AV/36/2011 dated 31.01.2011 passed by the Commissioner of Central Excise (Appeals-II), Mumbai-I.) For approval and signature: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical) =====================================================
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? ===================================================== M/s Kotak Mahindra Capital Co. Ltd. Appellant Vs. Commissioner of Service Tax, Mumbai-I Respondent Appearance: Shri Rohan Shah, Advocate with Shri Anay Banhati, Advocate Ms. Sanchita Rungta, Advocate for Appellant Shri B.K. Iyer, Supdt. (A.R.) for Respondent CORAM: HONBLE SHRI M.V. RAVINDRAN, MEMBER (JUDICIAL) HONBLE SHRI C.J. MATHEW, MEMBER (TECHNICAL) Date of Hearing: 03.02.2016 Date of Decision: 03.02.2016 ORDER NO. Per: M.V. Ravindran:
This appeal is directed against Order-in-Appeal No. MI/AV/36/2011 dated 31.01.2011 passed by the Commissioner of Central Excise (Appeals-II), Mumbai-I.
2. Heard both sides and perusal of the records.
3. The appellants are engaged in professional advisory/consultancy services, Corporate Advisory Services, Financial Advisory Services & Consulting Services in relation to Merger & Acquisitions, to various customers/clients falling under the category of Management consultancy Services. It was noticed by the Revenue that during the period 2000-2001, appellant had not discharged Service Tax liability on the amount received as fees for the Advisory Services & Consulting Services in relation to Merger & Acquisitions. A show-cause notice dated 10.04.2006 was issued demanding Service Tax for the period, under the category of management consultancy services. Appellant contested the demand on merits as well as on limitation. The adjudicating authority, after following due process of law, confirmed the demands raised with interest and also imposed penalties. Aggrieved by such an order appeal was preferred, first appellate authority did not agree with contentions raised and concurred with adjudicating authoritys order.
4. Learned Counsel appearing for the appellant takes us the entire case records. It is his submission that the lower authorities erred in coming to a conclusion that during the period of question that appellant rendered Management Consultancy Services. He would submit as the Service Tax liability on advisory services was introduced as a separate category under the Banking and Other Financial Services, w.e.f. 16.07.2001. He would submit that they have discharged the Service Tax from 16.07.2001. He would submit that since a new category of the services was introduced w.e.f. 16.07.2001, no Service Tax liability arises for the period prior to 16.07.2001. He would submit that Hon'ble High Court of Bombay in the case of Indian National Shipowners Association Vs. UOI [2009 (14) STR 289 (Bom.)] held so, he would read the specific para to us which is reproduced in reported judgement in the case of DSP Merrill Lynch Limited wherein this Bench by a final Order No. 85279 85280/16/STB dated 11.01.2016 considered the same issue and held in favour of the assessee.
5. Learned Departmental Representative reiterated the findings of lower authorities; relied upon Board Circular No. 1/1/2001-ST (Section 37-B) dated 27.06.2001 and this Circular was issued for taxable of the services under the category of Management consultancy Services, Merger and Acquisition. He would read para 9 and 11 of the Circular.
6. We have considered the submissions made at length by both sides and perused the records.
7. The issue involved in this case is regarding tax liability on appellant for the period prior 16.07.2001 under the category of Management consultancy Services for the Advisory Services & Consulting Services in relation to Merger & Acquisitions. It is undisputed that the demand in this case is only on for the rendering Advisory Services in respect of Merger & Acquisitions, Revenue wants to classify the said services under Management consultancy Services prior period to 16.07.2001. In order to appreciate the correct position definition of Management Consultant Services and Banking & other Financial Services, we reproduce the definition as under:-
Management Consultant means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organisation in any manner and includes any person who renders any advice, consultancy or technical assistance, relating to conceptualising, devising, development, modification, rectification or upgradation of any working system of any organisation.
Banking & 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;
8. It can be seen above that services as rendered by the appellant, would not fall under Management consultancy Services, as there services rendered by the appellant may not get covered even as per CBEC Circular dated 26.07.2001. We do not agree with the arguments of learned Departmental Representative, for the simple reason on the question of Merger & Acquisitions (as per the CBEC) was considered by this Bench in the case of DSP Merrill Lynch Limited (supra) and in para 11 it is held that :-
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 Service Tax, 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. It can be seen, that Bench discarded learned Departmental Representatives arguments that these services are covered under the Management consultancy Services. We find that in another judgement in the case of Indian National Shipowners Association ratio of para No. 37-38 as to taxability of new entry was decided. We reproduce the said paragraphs:-
37.?Entry (zzzzj) is entirely a new entry. Whereas entry (zzzy) covers services provided to any person in relation to mining of mineral, oil or gas, services covered by entry (zzzzj) can be identified by the presence of two characteristics namely (a) supply of tangible goods including machinery, equipment and appliances for use, (b) there is no transfer of right of possession and effective control of such machinery, equipment and appliances. According to the members of the 1st petitioner, they supply offshore support vessels to carry out jobs like anchor handling, towing of vessels, supply to rig or platform, diving support, fire fighting etc. Their marine construction barges support offshore construction, provide accommodation, crane support and stoppage area on main deck or equipment. Their harbour tugs are deployed for piloting big vessels in and out of the harbour and for husbanding main fleet. They give vessels on time charter basis to oil and gas producers to carry out offshore exploration and production activities. The right of possession in and effective control of such machinery, equipment and appliances is not parted with. Therefore, those activities clearly fall in entry (zzzzj) and the services rendered by the members of the 1st petitioner have been specifically brought to the levy of Service Tax only upon the insertion of this new entry.
38.?If the Departments contention is accepted that would mean that the activities of the members of the 1st petitioner are covered by entry (zzzy) and entry (zzzzj). Such a result is difficult to comprehend because entry (zzzzj) is not a specie of what is covered by entry (zzzy). 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. As above ratio applies in this case also, as we find that taxability of Merger & Acquisitions is covered under Banking and Financial Services, w.e.f. 16.07.2001. Accordingly it is held that Service Tax liability in the facts of this case is w.e.f. 16.07.2001 only and not prior to that date.
9. In view of the foregoing, we find that the impugned order is unsustainable and liable to be set aside. The impugned order is set aside and the appeal is allowed with consequential relief, if any.
(Operative order pronounced in open Court) (C.J. Mathew) (M.V. Ravindran) Member (Technical) Member (Judicial) Sp 4 APPEAL NO. ST/348/11