Custom, Excise & Service Tax Tribunal
Per: P.R. Chandrasekharan vs Unknown on 9 May, 2014
Per: P.R. Chandrasekharan:
27. I have carefully gone through the order recorded by the learned Member (Judicial). However, I am unable to agree with the findings given therein. Therefore, I am recording a separate order.
28. The question for consideration is whether the services rendered by the appellant M/s. IHCL to M/s. LHL merits classification under Management Consultancy Services, and if so, liable to be taxed accordingly. The only agreement relevant for deciding this issue is the Licence Agreement entered into between LHL and IHCL dated 09/09/2002. In terms of the said agreement IHCL was required to run, develop, conduct, operate, manage, renovate and modernize and expand the hotel belonging to M/s. LHL. In terms of the said agreement IHCL was required to undertake the following operations:
16. IHCLS COVENANTS
16.1 IHCL agrees, undertakes and declares that:
a) It shall during the Term of this Agreement pay and discharge all Operating Expenses.
b) It shall use, occupy, run, operate, conduct, manage and maintain at its cost the Hotel in accordance with acceptable quality standards and make
available to the Hotel professional expertise and Hotel related technology as may be required in the opinion of IHCL for a Hotel of this standard and
reputation.
c) It shall not commit or do any act or deed whereby the approvals are in any way suspended or adversely affected or liable to be revoked.
d) It shall pay and discharge all the current liabilities and/or expenses incurred after the Appointed Date save and except as otherwise provided in this Agreement.
e) It shall pay and discharge all taxes imposed or payable in law for providing the services during the Term of this Agreement.
f) It shall insure and keep insured the Hotel including the assets belonging to LHL in the manner herein provided at its own cost and expense.
g) It shall pay and discharge all the existing fees levied or demanded or payable to the Municipal Authorities or the State Government Authorities or any other authorities concerned as the case may be in respect of the operations of the Hotel if they pertain to the period after the Appointed Date. IHCL further declares and confirms that it shall take all such steps as may be necessary and appropriate to contest such levies, taxes, cess etc., in any court's of law/tribunal including filing of appeals, writ petitions, suits and take recourse to such other remedies as it may deem fit and necessary.
h) It will promptly pay the Consideration in the manner provided in Section 4-
i) It will indemnify and keep indemnified LHL against any claim, liabilities, suit or legal proceeding if it arises on and after the Appointed Date directly due to its negligence or default in running, managing, conducting and/or Operating-the Hotel.
j) It will ensure that all the requisite rules, regulations and laws applicable to the running, managing, conducting and Operation of the Hotel are duly conformed to and/or complied with at all times.
k) It shall be responsible to keep at its cost, the Hotel building and the entire premises together with the fittings, fixtures, furniture. and other installations and LHL assets in a safe, good and sound condition, save normal wear and tear.
l) It shall be responsible to secure from time to time all necessary permissions, licenses or permits as may be required from the authorities concerned in order to carry on the Hotel business to the acceptable,, standards in the Hotel. LHL shall render such assistance as may be required by IHCL to Obtain and keep in force or renew such licenses, permits or permissions.
m) It shall pay sales tax, excise customs, octroi and other duties, dues, levies and other statutory liabilities relating to the Hotel and its operations imposed during the Term and discharge the same provided they pertain to the period after the Appointed Date.
n) It shall pay provident fund contribution, ESIS contribution, gratuity, and tax deducted at source, and other duties, dues, levies and other statutory liabilities payable in respect of staff on the employment rolls of LHL on and from the Appointed Date.
o) It shall exercise the powers granted under the power of attorney in the best interests of LHL.
p) Whatever permissions and/or approvals required to be obtained for the purpose of implementing the terms of this Agreement will be duly obtained from time to time by it. IHCL shall take the assistance of LHL, if so required, for obtaining licenses or permissions in respect of the Hotel.
q) It shall ensure that after the expiry of this Agreement, or the sooner termination thereof, the Hotel together with the assets shall be handed over to all-in in a good and serviceable condition, save and except normal wear and tear, subject to LHL settling all dues of IHCL. IHCL further declares and confirms that it shall allow LHL to inspect the Hotel through any of its employees, for the purposes of ensuring that the provisions of this Agreement are being duly complied with by IHCL, after giving an intimation to IHCL/General Manager of the Hotel and such intimation shall not cause any disturbance to and/or disruption of the Operations of the Hotel.
28.1. From a perusal of the activities undertaken by the appellant it can be easily seen that the contention of the appellant that they were conducting/managing their own hotel is clearly disproved. If the appellant were managing their own hotel, there was no need to enter into an agreement with LHL, who is the owner of the hotel as specified in pre-ample to the agreement wherein it is stated as follows:
LHL is the true and legal owner of the Hotel (as defined hereinafter) and the related assets situated at CTS Nos: B/899A Byramjee Jejeebhoy Road, Bandra, Mumbai.
It is therefore, clear that the appellants were not managing their own hotel but were undertaking the said activity for M/s. LHL.
28.2. Further as per Clause 4.3 of the agreement, the consideration paid to IHCL is specified and the said clause reads as follows:
4.3 In consideration of IHCL carrying on the Operations of the Hotel, IHCL shall be entitled to receive and appropriate the Net Sales amount.
If as per the contention of the appellant, they were managing the affairs of the hotel on their own account, there was no need for specification of a clause relating to payment of consideration to IHCL. Therefore, this contention of the appellant that they were managing/operating the hotel on their own account is clearly incorrect and untenable in law.
28.3. It is also argued by the appellant that, M/s. LHL only made available the hotel and the assets therein on lease basis and, therefore, the transaction might come under the category of renting of immovable property. However, this contention is clearly untenable for the reason that, in clause 27 of the agreement, it has been specifically provided that the agreement shall not be construed as a lease or rental and the premises were handed over to the appellant only for maintaining and running the hotel in terms of the agreement. When the contract specifically provides that it shall not be construed as an agreement to lease, hire or rent, this contention of the appellant also falls flat. The concerned clause specifically reads as follows:
nothing contained in the agreement shall be construed as establishing or creating a relationship of employment, partnership, agency, lease, tenancy, sharing of profits or joint venture between the Parties hereto and nothing contained herein shall be construed as a sale, lease, transfer or disposal of the whole or substantial the whole of the undertaking of LHL and/or creating any interest in the immovable property in favour of IHCL.
Therefore, the argument that the property was leased to IHCL, who were running the hotel is clearly unsustainable.
28.4. To understand the transaction better, the appellant was asked to furnish a copy of the agreement entered into with other parties where they were discharging service tax liability under the category of Management Consultancy Services. One such agreement entered into with M/s. Piem Hotels Ltd. was furnished by the appellant. The said agreement provided for rendering of consultancy and advisory services by IHCL to the said Piem Hotels Ltd. Article VII of the said agreement is reproduced below:
ARTICLE-VII
CONSULTANCY & ADVISORY SERVICES TO BE RENDERED BY THE CONSULTANTS & ADVISORS
SECTION - I
The Consultants and Advisors hereby agree to offer services and advice and guidance in directing and supervising the control and performance of all services and do or cause to be done all things reasonably necessary or proper for the efficient and proper operation of the Hotel. Without limiting the generality of the foregoing, the Consultants and Advisors shall, subject to the approval of the Board of Directors of the Company in overall matters of policy, be vested with authority in respect of the following acts, deeds, matters and things: -
(a) recruitment, training and assignment of duties of all personnel, provided that the key personnel shall be appointed in consultation with and subject to the approval of the Company;
(b) Fixation of emoluments of all staff including fringe benefits and welfare schemes;
(c) The formulation and administration of personnel policies including transfer or termination of employment in consultation with the Company;
(d) Institution and supervision of operating policies, principles, systems and procedures for all departments, including purchasing, accounting, credit management, sales promotion, public relations, front office, housekeeping, security, kitchen, restaurant, Hotel engineering and maintenance, personnel, etc.
(e) Institution of reporting and control systems and procedures for all department;
(f) The establishment of all prices, price schedules, rates, and rate schedule;
(g) The negotiation and execution in the normal course of Hotel business of licences and concessions including shops in the Hotel with the approval of the Company;
(h) The obtaining and granting of such other concessions and privileges as the Consultants and Advisors may deem necessary or desirable in connection with the operation of the Hotel.
(i) Supervision and control of the activities of licences, concessionaires and holders of privileges including shops and their employees, including the dispossessing or other proper cause of the termination of the rights of concessionaires and holders of privileges including shops for similar proper cause;
(j) Maintenance of all books of control and accounts to be kept in accordance with the uniform system of accounts and requirements of law,
(k) the granting and limiting of the credit of patrons of the Hotel in consultation with the Company;
(l) Generally negotiating and executing of contracts necessary or desirable in connection with the operation of the Hotel in the usual course of business,
(m) The purchasing of such inventories, provisions, supplies and equipment as the Consultants and Advisors may deem reasonably necessary in order to maintain and operate the Hotel property;
(n) In consultation with the Company, taking of any action at law or in equity in the name of the Company which the Consultants and Advisors or in the name of the Company which the Consultants and Advisors shall deem necessary and proper in connection with the operation of the Hotel;
(o) The making of such reasonable repairs, alterations and decorations to the Hotel as the Consultants and Advisors may deem reasonably necessary for the proper maintenance and operation thereof, provided that any expenditure of a capital nature not provided in the approved budgets for any year shall not be incurred without the prior written approval of the Company.
(p) The planning, preparation of and contracting for advertising and promotional programme for the Hotel;
(q) Advising the Company in matters of public relations;
(r) Generally to perform all acts reasonably necessary in connection with the operation of the Hotel in an efficient and proper manner.
SECTION 2
If the Company and the Consultants and Advisors agree, the Consultants and Advisors shall use their good offices to arrange such sales and reservation agreements with such reputable international Hotel chains on other international bodies. Fees and other charges payable pursuant to such Agreement shall be paid by the Company and shall form part of deductible expenses.
ARTICLE VIII
CONSULTATION FEES
1.As fees for the services covered by this Agreement, the Company shall pay to the Consultants and Advisors 5% of the Gross Income plus Service Tax as applicable as defined in clause 4 of Article I.
2. In addition to 1 above, the Company shall: -
(a) Reimburse all reasonable travelling telephone, telegraph, telex, subsistance and postal and all other out-of-pocket expenses incurred by the Consultants and Advisors while engaged on the business of the Hotel of the Company;
(b) reimburse the fees and other expenses payable to any outside consultants or specialised personnel employed or retained by the Consultants and Advisors with the previous approval in writing of the Company;
(c) reimburse the pro-rated costs of group advertising sales promotion and specialised facilities incurred in the furtherance of the interests of the Hotel.
Further, it is agreed and understood that all expenses pertaining to the operation of the Hotel and all costs incurred in maintaining the Hotel as a first class Hotel of a standard equal to the standards of any other international Hotel including repairs, replacements, additions, alterations or improvements to the Hotel shall be on account of and shall be paid for by the Company out of the receipts of the Hotel. If we see the terms and conditions of the said agreement and compare the same with the terms and conditions of the agreement with LHL, the activities undertaken by the appellant in both the cases are more or less identical. Therefore, I do not understand how in respect of one agreement, the appellant could consider it as management consultancy service whereas in respect of more or less identical activities carried out in terms of another agreement, the transaction ceases to be a management consultancy service.
28.5. I have also perused another agreement entered into by the appellant with Oriental Hotels Ltd. wherein also the appellant was discharging service tax liability under the category of management consultancy services. The activities rendered in respect of the said agreement were also similar to those obtaining in the agreement with the Piem Hotels Ltd. and in the agreement with LHL.
28.6. It is also worthwhile to note that all the employees of LHL were used by IHCL for running of the hotel and they continued to be employees of LHL during the course of the agreement. Even new staffs who were recruited, were also employees of LHL. This provision in the agreement also makes it abundantly clear that IHCL was not undertaking activities on their own account but were rendering the services to LHL by operating/managing the hotel. The agreement also provided for IHCL to report to LHL all the activities carried out by them and to hold discussions to formulate strategies. If IHCL was functioning on their own account, there was no need for submission of reports to LHL or discussion with LHL to devise strategies. Therefore, the terms and conditions of the agreement clearly point out that IHCL was rendering service to LHL and the service consisted of advising, developing and operating strategies for running of the hotel. This activity would clearly fall within the scope of management consultancy services as defined in law.
28.7. It has been argued that M/s. IHCL, the appellant herein, is not receiving any consultancy fees but the consideration is paid for the services rendered by allowing retention of the net sales amount, i.e., sale income minus expenditure and, therefore, since the consideration is paid by way of net sale amount, the transaction is not one of consultancy or advice. This contention of the appellant is clearly mis-placed. The nature or mode of payment does not determine the nature of the activity. Compensation for the services rendered can be made either by paying a fixed sum or by taking services in exchange or by sharing profits made in the transaction. Merely because different modes are adopted for payment of consideration would not alter the nature of the transaction. In matters of taxation, it is a well settled position that the measure of the levy does not determine the nature of the levy. The nature of the levy is independent of the measure of the levy. This position has been made very clear by the honble apex Court in the case of Bombay Tyre International Ltd.[1983 (14) ELT 1896 (SC). In the said case the apex court held as follows:-
It is misconceived that the measure to assess the Excise Duty was to be found by reading Section 3 with Section 4 of the Central Excises and Salt Act. There is nothing in Section 3(1) which clothes the provision with a dual character, a charging provision as well as a provision defining the measure of the charge. The standards adopted by the Legislature for determining the value may press for a broader base than that on which the charging provision proceeds. To further illustrate, when a property is rented out for a consideration, the said activity can be taxed under different laws in its different aspects. Service tax can be levied on the activity under the taxable service category of renting of immovable property. The income generated from the property can be assessed to income tax for the reason of earning income from the property. Property tax would also be leviable for the enjoyment of the ownership of the property. All these different taxes can be levied as a percentage of the rental charged by the lessor of the property. The very same rental income can form the basis for levy of service tax, income tax and property tax. Therefore, the measure/quantum of the consideration received does not determine the nature of the tax. The nature of the tax is solely based on the activity rendered and whether the same falls within the taxable category or not? Therefore, the argument that, since the payment of consideration has been made to the appellant by way of share in profits or share in the sales income does not alter the nature of the services rendered. Therefore, the argument made in this regard by the appellant is clearly not sustainable in law.
28.8. Let us now see the statutory definitions provided in respect of Management Consultancy Services. During 16/10/1998 to 30/04/2006, the statutory definition read as follows:
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, in relating to conceptualising, devising, development, modification, rectification or upgradation of any working system of any organisation. 28.9. The definition underwent a change on 1-5-2006 and during 01/05/2006 to 01/06/2007, the revised definition read as follows:
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, 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. The definition underwent a further change w.e.f. 01/06/2007 and the amended definition read as follows:
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 organisation 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. Taxable service was defined in section 65 (105)(r) as-
any service provided or to be provided to a client, by a management consultant in connection with the management of any organization, in any manner.
28.10. From the above definitions, it can be seen that the definition consists of two parts. The first part says that any service either directly or indirectly in connection with the management of any organisation in any manner would be a management consultancy service. The expressions used in the definition, namely, means and includes, either directly or indirectly, in connection with the management and in any manner are expressions of width and amplitude and includes in their scope any service in relation to the management of any organisation. The second part of the definition is the inclusive part which provides for rendering of any advice or technical assistance in specific areas of management.
28.11. In the case of Bharat Cooperative Bank (Mumbai) Ltd. v. Coop. Bank Employees Union, AIR 2007 SC 2320, the Apex Court observed as follows :-
.., when the word includes is used in the definition, the legislature does not intend to restrict the definition; makes the definition enumerative but not exhaustive. That is to say, the term defined will retain its ordinary meaning but its scope would be extended to bring within it matters, which in its ordinary meaning may or may not comprise. Therefore, the use of the word means followed by the word includes in Section 2(bb) of the ID Act is clearly indicative of the legislative intent to make the definition. In the case of V.F. & G. Insurance Co. v. M/s. Fraser & Ross, AIR 1960 SC 971, the Apex Court observed that when the expression means is used, generally the definition is exhaustive. The honble High Court of Gujarat in the case of Parth Woollen Mills Pvt. Ltd. [2012 (25) S.T.R. 4 (Guj.)] considered the scope of the expression means and includes and held that-
In other words, the expression includes followed by means in any definition is generally understood to be expanding the definition of the term to make it exhaustive, but in no manner can the expression includes be utilized to limit the scope of definition provided in the main body of the definition. It can thus be seen that the definition of management consultancy service is really very wide and includes in its scope all gamut of activities rendered in connection with such service.
28.12. The scope of management consultancy services was examined by the CBEC in consultation with the Indian Institute of Management, Ahmedabad and the opinion obtained was communicated vide Boards Circular No. 1/1/2001-ST dated 27/06/2001, which reads as follows:
7. In this regard, the Board had consulted the Indian? Institute of Management, Ahmedabad for obtaining an expert opinion on the subject matter. They have opined that the term Management is generally understood to mean running the affair of an organisation in an organised and systematic manner. To be able to do this efficiently and effectively, management typically involves carrying out a host of activities, functions and tasks and at different levels. Thus management encompasses both strategic and operational level functioning and would include tasks such as planning, organising, staffing, directing, controlling and coordinating. Management also invariably involves designing organisational structure around functions such as marketing, manufacturing, research and development and finance and/or business area such as product groups or geographical markets. Thus management of any organisation involves carrying out a wide variety of clearly defined activities across a number of organisational sub-units in a coherent and coordinated manner. Since the expression Management is an inclusive term, management consultant would also be equally encompassing expression and would include any adviser who renders services on any aspect of management. They have further opined that financial advisory services rendered in merger and acquisition transactions are clearly in the nature of services in connection with the management of an organisation as merger and acquisition themselves are important dimension of modern management. 28.13. From the expert opinion given by the Indian Institute of Management, Ahmedabad (which is a premier organization in the country in management education and consultancy), it can be seen that running the affairs of an organisation in an organized, systematic manner is management and to effectively do this, it involves carrying out a host of activities, functions and tasks and at different levels. It would encompass the task such as planning, organizing, staffing, directing, controlling and coordinating and control. In other words, operational functions of an organization would clearly fall within the scope of management and if any service has been rendered in relation to the management of an organisation, either directly or indirectly, the same would fall within the definition of management consultancy service.
28.14. The second part of the definition deals with rendering of advice, consultancy or technical assistance. The scope of the expression technical assistance was considered by this Tribunal in Nokia (India) Pvt. Ltd. vs. Commissioner of Customs [2006(1) STR 233] and the Tribunal held as follows:
18. The learned Counsel for the appellant took aid from the maxim nocitur a sociis for contending that meaning of the expression "technical assistance" occurring in the definition clause of "consulting engineer" should he confined to mere advisory or consultative assistance where purely cerebral function was involved. This would, in our opinion, be totally an unrealistic approach in the field of consultative engineering. Advice and consultation of a saint sitting under a banyan tree may mainly involve thought processes and discourses with no physical activity on the part of the saint towards assisting the recipient in the implementation of advice and, therefore, be purely a cerebral function, but that would be altogether different from the advice and consultancy of a qualified professional consultant engineer who is well versed with a discipline of engineering and has to render professional advice and consultancy to his client in respect of material objects that may require active technical assistance for making such advice and consultancy a meaningful and effective service. The expression "consultant engineer" cannot be understood so narrowly, as the learned Counsel would want us to believe in the engineering field, as is clear from the multifarious activities of consultant engineers declared by their own federation. The definition of "consultant engineer" which encompasses direct or indirect rendering of such service including technical assistance is, in our opinion, wide enough to embrace the training of personnel, software support, operation and maintenance services, emergency support services, technical consultancy etc. of the nature provided under various terms and conditions of the technical support services rendered by the appellant, and the contentions raised to the contrary by the learned Counsel for the appellant are, therefore, misconceived and cannot be accepted. Though this expression was considered in the context of Consulting Engineers service, the ratio would apply equally in the case of Management Consultancy Services since the wordings of both the services are identical. Both the services provide for rendering of advice, consultancy or technical assistance. From the above decision, it can be clearly seen that the actual operation of an organisation would also fall within the scope of technical assistance. A more or less identical issue arose for consideration by this Tribunal in the case of HSBC Securities and Capital Markers (I) P. Ltd. [2014 (33) STR 530 (Tri.-Mum). In the said case, the appellant therein also undertook executory functions in addition to advisory function. It was contended that the executory functions would not come within the scope of management consultancy service. Negativing the contention, this Tribunal held that such functions also would get covered under the definition of management consultancy service, relying on the opinion given by the Indian Institute of Management, Ahmedabad, cited supra.
28.15. A similar issue came before the honble apex Court in the case of Central Board of Direct Taxes vs. Oberoi Hotels (India) Pvt. Ltd. [1998] 231 ITR 148 (SC). The question for consideration was whether technical services would include managerial services or not? The issue before the apex Court was in the context of an income tax matter. The appellant Oberoi Hotels (India) Ltd. undertook operation of the Soaltee Hotel Pvt. Ltd. in Kathmandu, Nepal and received income in convertible foreign exchange. The income tax department was of the view that the services rendered by the appellant was in the nature of a managerial services and the consideration received was in respect of managerial services and, therefore, not eligible for exclusion for the purpose of income tax since the concerned section provided for exclusion of income received towards rendering of technical services and not managerial services. The honble apex Court negatived this contention and held that modern system of management requires considerable technical skill and know-how and, therefore the expression technical should receive a broad interpretation to include professional/managerial services as well. The court observed that as per the New Websters Dictionary of English language, the word technical means what is characteristic of a particular art, science, profession, or trade and the word "technology" means the branch of knowledge that deals with the industrial arts and sciences; utilisation of such knowledge; the knowledge and means used to produce the material necessities of a society. Therefore, it was held that provision of technical know-how or technical service forms part of the managerial service and, therefore, the appellant would be eligible for the benefit of income tax deduction. In my considered view, the said ratio would apply to the facts of the present case. Merely because the appellant has undertaken operation of the hotel belonging to LHL, it does not cease to be a managerial service. From the terms and conditions of the agreement, it is seen that the appellant was required to undertake marketing management, human resource management, inventory management, financial management and a host of other activities for LHL. Therefore, the said activities would clearly fall within the expression technical assistance as defined in Management Consultancy Service. Therefore, from whichever angle one looks at the issue, it is clear that the services rendered by the appellant, IHCL to LHL would fall clearly within the scope of Management Consultancy Service.
28.16. A larger bench of this Tribunal in the case of Commissioner of Central Excise, Raipur vs. BSBK PVT. LTD. [2010 (253) E.L.T. 522 (Tri. - LB) ] had an occasion to examine the scope of the term service and held as follows:-
The term service generally means service of any description which is made available to potential user and includes the provision of facilities. Such term has variety of meanings. It may mean any benefit or any act resulting in promoting or serving interest of the recipient. It may be contractual, professional, public, domestic, legal, and statutory etc. How it should be understood and what it means depends in the context in which it has been used in an enactment. An activity in the nature of service whether provided individually or integrally and solely, separately or combinedly with other activities has its identity. Permutation and combination of activities or services do not change character of the activity or service. It may be possible that while an activity in a cluster of activities may be dominant others may not be prominent. But each activity has its identity, existence and independence and play its role. A plain and simple service contract or a composite contract comprising various activities of different nature of services do not make any difference to discern role of each service involved in a composite or Turnkey contracts. If we apply the above concept of service, in my considered view, the executory functions undertaken by the appellant in the present case would certainly fall within the scope of management consultancy service.
28.17. The honble Apex Court in the case of Balwant Singh vs. Jagdish Singh [2010 (262) E.L.T. 50 (S.C.)] explained the principle of statutory interpretation as follows:-
It must be kept in mind that whenever a law is enacted by the legislature, it is intended to be enforced in its proper perspective. It is an equally settled principle of law that the provisions of a statute, including every word, have to be given full effect, keeping the legislative intent in mind, in order to ensure that the projected object is achieved. In other words, no provisions can be treated to have been enacted purposelessly. Furthermore, it is also a well settled canon of interpretative jurisprudence that the Court should not give such an interpretation to provisions which would render the provision ineffective or odious. Thus the expression technical assistance used in the definition of management consultancy service has to be given full effect to and if this is done, then it can be easily seen that even executory functions rendered as part of the consultancy or advisory functions would also fall within the definition of management consultancy service.
28.18. Reliance has been placed on the decision of the Tribunal in the case of Basti Sugar Mills Co. Ltd. vs. Commissioner of Central Excise, Allahabad 2007 (7) STR 431 which has been affirmed by the honble apex Court. If one peruses the decision of the apex Court, the only reason for upholding the Tribunals decision in the Basti Sugar Mills Co. Ltd. was:
Admittedly, the revenue did not file any appeal against the earlier decision of the Tribunal in Rolls Royce Indus Power (I) Ltd. vs. Commissioner of Central Excise, Vishakhapatnam and the same has attained finality, relying upon which the Tribunal has dismissed the present appeal.
In view of the above, this appeal is dismissed but without any order as to costs. A reading of the Supreme Courts decision makes it clear that the Supreme Court did not uphold the decision in the Basti Sugar Mills case on merits. In fact the apex court did not even examine the scope of management consultancy service. The Supreme Court merely said that since the decision in the case of Rolls Royce Indus Power (I) Ltd. was not appealed against and the same had attained finality, the present appeal would not sustain. Therefore, it cannot be said that the honble apex court laid down any ratio in the Basti Sugar Mills case. In the case of Rolls Royce Indus Power (I) Ltd. [2006 (3) STR 292] referred to in the Supreme Courts order, the issue related to an agreement in which operation and maintenance of a power plant was given to the appellant therein and the said agreement did not provide for any advice or consultancy service. The question for consideration was whether the said activity would come within the purview of Consulting Engineers Service or not? It was held that the appellant therein was undertaking only operation and maintenance of the power plant for which consideration was paid and therefore, the said activity would not come under the purview of Consulting Engineers service. The Basti Sugar Mills Co. Ltd.s case (supra) relied upon by the appellant and the Member (Judicial) does not even consider the scope of the term technical assistance specified in the Management Consultancy Service. Therefore, the said decision is distinguishable both on facts and in law. The opinion of the Indian Institute of Management was also not there before the Tribunal for consideration in the said case. In any case, it is a settled position in law that the principle of res judicata will not apply in matters of classification in a tax dispute.
28.19. In the appeal before us, a series of activities have been undertaken by the appellant by way of financial management, human resources management, marketing management, inventory management and so on. Therefore, the scope of the work involved in the present case is substantially wider than that in the Basti Sugar Mills Co. Ltd.s case. Therefore, the ratio of the said decision has no relevance, whatsoever, to the facts of the present case.
28.20. The next question for consideration is whether the extended period of time could be invoked to confirm the service tax demand. While the department has alleged suppression on the part of the appellant, inasmuch as the activities were not disclosed by the appellant to the department, either by way of declaration in the statutory returns or otherwise, the appellants contention is that that the activity of taking over the property by IHCL was published in the newspapers and, therefore, no suppression can be alleged. This argument of the appellant is rather strange. The department is not expected to come to know of the activities of the appellant by reading about it in newspapers. Media will report various matters based on their understanding. Whether an activity falls within the statutory definition of a taxable service or not has to be discerned from the contracts entered into. So long as the contracts were not made available to the department, it is difficult for the department to find out whether the activity undertaken is a taxable activity or a non-taxable activity. Further, invocation of extended period of time under Section 73 of the Finance Act, 1994 does not envisage reading of newspapers and gathering information. Under Section 70 of the said Finance Act, the assessee has to determine the duty liability and discharge the same. In other words, it is a self-assessment scheme under which the assessee operates. If the activities are not disclosed either by way of clear indication in the ST-3 returns or by way of letters, it cannot be said that the assessee has informed the department of its activities.
28.21. In the present case, there is one more reason. The appellant himself was discharging service tax liability under the category of Management Consultancy Service in respect of almost identical activities performed for other service recipients. Therefore, the appellant clearly knew the scope of the term Management Consultancy Services. However, in respect of the contract entered into with LHL, they deliberately withheld the information to the department by non- declaration. The contracts entered into with M/s. LHL in 2002 was made available to the department only in December 2005 after commencement of the investigation in the matter. Therefore, the time limit for issue of show cause notice starts from December 2005, when the department became aware of the nature of the transaction undertaken by the appellant. The honble apex Court in the case of Commissioner of Central Excise vs. Mehta & Co. [2011 (264) ELT 481(SC)] has held that only when the department is informed in writing and the details are furnished, it can be said that the department acquired knowledge and the time-limit will start from the date of receipt of information. From this date five years period is available to the department to issue the demand notice. The same view was reiterated by the honble Gujarat High Court in the case of Neminath Fabrics Pvt. Ltd. [2010 (256) ELT 369 (Guj)] by observing that if the appellant assessee withheld the information from the department by not declaring the same in the statutory returns, then a presumption might arise against the assessee justifying invocation of extended period of time for raising the demand. Following the same, in the present case also, it has to be held that the appellant has suppressed the information with intent to evade tax and therefore, invocation of extended period of time for confirmation of demand is justified.
28.22. The last question is with regard to imposition of penalties. As regards the imposition of penalty in the present case, penalty has been imposed under the provisions of Sections 76, 77 and 78 of the Finance Act, 1994. Penalty under Section 76 is imposable when there is a default or delay in payment of service tax. No mens rea is required to be proved for imposition of penalty under Section 76. Penalty under Section 77 is imposable for failure to comply with the service tax procedures. In this case also there is no requirement of any mens rea. Only for the purpose of penalty under Section 78 mens rea is required to be proved. This position is well settled by the decision of the honble High Court of Kerala in the case of Krishna Poduval vs. Asst. Collector of Central Excise [ 2006 (1) STR 185 (Ker)]. Therefore, imposition of penalty under Sections 76 and 77 on the appellant in the facts of the present case cannot be faulted at all.
28.23. As regards the penalty imposed under Section 78 of the Finance Act, 1994, it is a generally accepted position in law that, in matters relating to classification disputes, imposition of penalty assuming mens rea on the part of the tax payer is not warranted. Therefore, in my considered view, there is no warrant to impose penalty under Section 78 which needs to be set aside.
29. To sum up, I am of the considered view that,-
(i) The services rendered by M/s IHCL merits classification under management consultancy service as defined in section 65
(ii) confirmation of service tax demand invoking the extended period of time in the present case is fully justified. Consequently, demand for interest also would sustain.
(iii) Imposition of penalties under Sections 76 and 77 of the Finance Act, 1994 is justified as there is a default/delay in payment of service tax and also violation of the statutory provisions governing service tax.
(iv) Since the matter relates to classification dispute, penalty under Section 78 is not warranted and accordingly, I set aside the same.
Thus, the appeal is partly allowed.
(P.R. Chandrasekharan) Member (Technical) */as 73