Custom, Excise & Service Tax Tribunal
M/S. Hsbc Securities And Capital ... vs Commissioner Of Service Tax, Mumbai on 3 October, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. Appeal No. ST/90/08-Mum. (Arising out of Order-in-Original No. V/STC/(HQ)Adj/HSB-49/06/1138 dated 9.2.2008 passed by the Commissioner (Adjudication) Central Excise, Mumbai ) For approval and signature: Honble Mr. S.S. Kang, Vice President Honble Mr. P.K.Jain, Member (Technical) ============================================================
1. Whether Press Reporters may be allowed to see :
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 :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy :
of the Order?
4. Whether Order is to be circulated to the Departmental :
authorities?
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M/s. HSBC Securities and Capital Markets (I) Pvt. Ltd.
:
Appellant
VS
Commissioner of Service Tax, Mumbai
:
Respondent
Appearance
Shri Prajakta Menezes, C.A. for Appellant
Shri Premanand Das, Commissioner (A.R) for respondent
CORAM:
Mr. S.S. Kang, Vice President
Mr. P.K. Jain, Member (Technical)
Date of hearing : 03/10/2013
Date of decision :
ORDER NO.
Per : P.K. Jain
The dispute in the case is regarding leviability of Service Tax under Management Consultancy Service in respect of following transactions carried out by the appellant during the period July 2000 to June 2001.
Sl.No. Name of the client/customer Particulars of services given in the Bill/Invoice or mandate/agreement letter
1. M/s. Birla VXL Ltd.
Assistance in proposed divestment & corporate advisory services in connection with the divestment
2. The Indian Cement Ltd.
Assistance in structuring of the transaction, valuation, discussion and negotiation of the transaction & advisory services and plan to acquire cement companies
3. M/s. ICICI India Ltd.
Advisor for proposed transaction of the divesting business of Motor & Industrial paints to a strategic acquirer.
4. M/s. Philips India Ltd.
Exclusive advisor for divestment of the project business of Philips India Ltd.
5. M/s. Berger Paint India Ltd.
Exclusive advisor to burger paint or its promoter to securing sole/joint management control over identified companies (Project Rangeela-I)
6. M/s. Eicher Goode Earth Ltd.
Advisor for restructuring its business portfolio, through a de-merger/spin-ff/other similar structure
7. M/s. Spice Communication Ltd.
Advisor to client for propose to merger spice cell and itself into a single entity
8. M/s. Choice Hospitality (India) Pvt. Ltd.
Exclusive advisor for restructure and substantial divest hotel properties/business and invite bids from interested buyers to purchase/enter into a lease cum management contract for selected properties /business..
9.
- do -
- do -
10.
- do -
- do -
11.
- do -
- do -
12. M/s. Chandras Chemical Enterprises Ltd.
Exclusive advisor for divest the ownership of brand/business of dendrite either in whole or in part to a potential acquirer
13. M/s. Modikem Pvt. Ltd.
Advisor to substantial acquisition of share of listed companies (open offer) under takeover code of SEBI
14. M/s. Modi Fashion & Securities Pvt. Ltd.
Advisor to substantial acquisition of share of listed companies (open offer) under takeover code of SEBI
15. M/s. Tata Industries Ltd.
Advisor and Managers to enable it to consolidate its holdings in TAML upto 100%
16. M/s. IMO Communication Exclusive Advisory/arrangers services for raising of private equity
17. M/s. Modichem Pvt. Ltd.
Advisor to substantial acquisition of share of listed companies
18. M/s. Mod Fashions & Sec. Pvt. Ltd.
Advisor to substantial acquisition of share of listed companies
19. M/s. Modi Holdings Ltd.
Advisor to substantial acquisition of share of listed companies
20. M/s. Maersk India Ltd.
Advisor in the valuation/negotiation for acquisition of equity stake in target and to assist in obtaining requisite regulatory approval
21. M/s. Creative Eye Ltd.
Advice the client for evaluate the business, structuring advice & assistance to the client on formulating and executing the marketing strategy.
22. M/s. Allazers Distribution Service Pvt. Ltd.
Exclusive Advisor to assist in development of its business plan, valuation, discussion, negotiation and structuring of the transaction
23. M/s. Design Expo Network Pvt. Ltd.
Exclusive advisor to assist in development of its business plan, valuation, discussion, negotiation and structuring of the transaction.
24. M/s. Wimco Boards Ltd.
Advisor for one time settlement success fee
25. M/s. Hindustan Lever Ltd.
Exclusive financial advisor to identify and implement structures which optimize the use of HLLs present & future surplus funds and leveraging capacity.
26.
- do -
- do -
27. M/s. Morepen Laboratories Ltd.
Exclusive advisor to assist in development of its business plan, valuation, discussion, negotiation and structuring of the transaction
28. M/s. Hindustan Lever Ltd.
Exclusive financial advisor to identify and implement structures which optimize the use of HLLs present & future surplus funds and leveraging capacity.
29M/s. J.T. International Exclusive advisor and arranger ad structuring and identifying potential infester.
30. M/s. Birla Management Corpn. Ltd.
Assist in valuation of CMC, preparation of bid, discussion, negotiation and structuring of the transaction
2. Ld. Counsel for the appellant stated that they are registered stock broker, underwriter and Category-1 Merchant Banker. Learned Counsel further submitted that such services were specifically included in the service tax w.e.f.16.7.2001 under banking and other financial services and therefore the same could not be taxed prior to 16.7.2001. He further argues that the appeal raises a pertinent question of law as to whether the service provided by the appellant in relation to merchant banking prior to 16.7.2001 are subject to service tax under the head Management Consulting Service especially when, w.e.f. 16.7.2001 a specific provision for taxing such service under BOFS was enacted. The next contention of the Ld. Counsel is that they were not providing any advise or consultancy as is anticipated under Management Consultancy Service but the service provided by them are executory in nature and therefore these cannot be called Management Consultancy Service. The next contention of the Ld. Counsel is on the limitation Ld. Counsel argues that Board has issued circular in 2001 clarifying the position. In the said circular it is stated that there was doubt on taxability of service relating to Merger and Acquisition. Keeping in view the fact that there was doubt and was clarified by the Board in 2001 extended period cannot be invoked. Other argument of the learned Counsel is that records of appellant were audited by the service tax department for the period September 1995 to March 2000, Department did not raise any objection and therefore the demand is time barred. Learned Counsels another argument is that the dispute involves interpretation of entry and absence of mens rea, therefore in the facts and circumstances of the case extended period cannot be invoked. Ld. Counsel also quoted certain case laws in support of his various arguments the said case laws are as under:-
(i) Swaraj Mazda Ltd. Vs. CCE, Chandigarh 2013 (31) S.T.R.205 (Tri.Del.)
(ii) B.S.R & Co. Vs. CST, Gurgaon 2013 (30) S.T.R. 242 (Tri.Del.)
(iii) Bharti Televentures Ltd. Vs. CCE,Delhi 2013 (30) S.T.R. 148 (Tri.Del.)
(iv) Ernst & Young Pvt. Ltd. Vs. CST, Delhi 2012 (27) S.T.R. 242 (Tri.Del.)
(v) Bharti Televentures Ltd. Vs. CCE, Delhi 2013 (30) S.T.R. 148 (Tri.Del.)
(vi) Ernst & Yougn Pvt. Ltd. Vs. CST, Delhi 2012 (27) S.T.R.462 (Tri.Del.)
(vii) CCE, Chennai Vs. Futura Polyesters Ltd.
2011 (24) S.T.R. 751 (Tri.-Chennai)
(viii) Punjab Venture Capital Ltd. Vs. CCE, Chandigarh 2011 (24) S.T.R. 410 (Tri.-Del.)
(ix) K.R. Alloys Ltd. Vs. CCE, Calicut 2009 (13) S.T.R. 584 (Tri.Bang)
(x) Jetlite (India) Ltd. Vs. CCE, Delhi 2011 (21) S.T.R. 119 (Tri.Del.)
(xi) Indian National Shipowners Association Vs. Union of India 2009 (14) S.T.R. 289 (Bom.)
(xii) Uniworth Textiles Ltd. Vs. Commissioner of Central Excise 2013 (288) E.L.T. 161 (S.C.)
(xiii) Associated Cement Co. Ltd. Vs. CCE 2001 (138) E.L.T. 911 (Tri.-Mumbai)
3. Ld. A.R. on the other hand stated that the definition of the Management Consultancy Service is quite vide and does not confine to any particular aspect of Management. Management Consultancy can be in the field of financial management, it can be in the field of production it can be in the field of marketing or H.R. etc. In the present case, the advice and consultancy was provided by the appellant in the field of finance. Under the circumstances the service provided is clearly covered by the definition of Management Consultancy service. He further stated that it is incorrect to state that their activities are executory in nature. The impugned order list out all the 30 transactions and it can be found in all cases they have provided advice. In some cases the nature of transaction is such that the advisory has to be followed to execute the same by them and in such transaction they have done some executory function. However such executory functions are subsidiary to the main functions of advising. Ld. A.R. further stated that vide order No.1/1/2001-ST(Section 37-B), dt. 27.6.2001, Board have issued clarification relating to merger and acquisition service alone. Further, the said order was issued in pursuance of the Public Notice on which certain doubts were raised. Under the circumstances, it cannot be said that extended period cannot be invoked. Ld. AR further stated that in any event the said circular is not applicable to all transactions and only 1/3 of the transaction may be relevant with respect to the clarification. Ld. AR further stated that audit was done for records upto March 2000 and here the demand is for period subsequent to the period of audit, in any case audit was done for stock broking activity of the appellant and, therefore, it cannot be said that since audit has been conducted extended period cannot be invoked. Ld. AR further stated that appellants are leading company and they have not even claimed that they have any bona fide belief for not paying duty. Ld. AR also stated the fact that they had not taken the registration under the Management Consultancy Service itself proves that extended period is invokable. As far as the appellants contention that pre 16.7.2001, such activities cannot be covered by Management Consultancy Service as the same are covered under BOFS after 16.7.2001. Ld. AR contended that one has to examine scope of various entries at the relevant time and decide about the applicability of service tax. It is possible that the particular service may be covered by more than one entry. It is for such eventuality that the Rules of interpretation were prescribed under the law. If a particular service could be covered by only one entry and there was not question of having such Rules. Various entries are not mutually exclusive. Ld. A.R also stated that the various case law quoted are in different context and cannot be applied to the facts of the present case.
4. We have given carefully thought to the various submissions made by both the sides. The various transactions which are covered by the said demand notice are listed in para-1 above. We have also gone through various agreements between the appellants and the various clients. (As detailed in para-1). On going through these agreements. It is found that the nature of service is purely advisory in nature. All the advices are relating to the financial restructuring relating to business of various clients. It is true that in few cases in addition to advices, certain executory functions have also been carried out. However, on going through such agreements, we find that these executory functions are consequent to the advice and also again followed up with further advice. It is because of the particular nature of the work/industry that such executory functions have been carried out. We are therefore of the view considered view that main function has been advisory in nature and not execution, execution seems to be incidental to the advisory functions. In view of this position, we reject the appellants contention that their activities are executory in nature and not advisory. In view of this conclusion, we find that first nine case laws mentioned in Para 2 supports the case of Revenue rather than appellant.
5. 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.
From the above definition of the Management Consultant it is clear that Management Consultant means any person who is engaged in providing any service in connection with the management of any organization in any manner. The definition is very wide and does not restrict itself to any particular field of management. The management can be in the field of Financial Management, Human Resources Management, Marketing Management, Production Management, Logistic Management, Procurement Management and any other area of management of the organization. We find that while examining this issue in the context of merger and acquisition advisory services, Board has obtained the opinion of Indian Institute of Management, Ahmedabad on the subject matter and Indian Institute of Management in its opinion has stated as under:-
In this regard, the Board had consulted the Indian Institute of Management, Ahmedabad or 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 organization in an organized 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, organizing, staffing, directing, controlling and coordinating Management also invariably involves designing organizational 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 organization involves carrying out a wide variety of clearly defined activities across a number of organizational 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 organization as merger and acquisition themselves are important dimension of modern management.
We also note that Financial Management including the type of services provided are typically taught in Management Courses/Education. Even most of the officers in organization such as that of appellants are MBAs In view of the position, as explained in above para as also the definition given under the law, we have no hesitation in holding that the various transaction covered by the said show cause notice will be covered by the Management Consultancy Service .
6. The other contention of the appellant is that from 16.7.2001 banking and other financial services were introduced and the definition under the banking and financial services included the activities of appellant. We have gone through the banking and financial services and definition which is reproduced below :
(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..
We observe from the above definition that the said definition is very vide and covers whole lot of activities relating to banking and other financial services. Most of these services cannot be included within the scope of the Management Consultancy Service. However, services covered by clause (vi) will be covered under Management Consultancy Service also. Thus the position before 16.7.2001 is that the said services were covered under the Management Consultancy Service, and w.e.f. 16.7.2001, the same would get covered under the Management Consultancy Service as also Banking and Other Financial Services and one will have to decide among the two services using provisions of law for classification of the services. Such provisions about the classification of services are provided under Section 65A of the Finance Act. The said section is as under:-
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;] We are not in agreement with the appellants contention that since the service is covered under BOFS w.e.f.16.7.2001 the same can not be covered under any other entry before that date. On going through the various services before the introduction of negative list concept (which has done away with positive list), it would be seen that there is no pattern or mutual exclusitivity in the scope of various services. In Customs and Central Excise Tariff the classification of the goods is based on highly scientific pattern. However in case of service tax it is seen that various services were brought into the tax net from 1994 onwards on adhoc basis. The various services have no pattern. Description of the services is not mutually exclusive. Some of the services are very specific and precise while some are wide in scope. It is for this reason that at times re-course has to be taken to Section 65 A for classifying particular services at a particular point of time. We have gone through the judgement of Bombay High court in the case of Indian National Shipowners Association Vs. Union of India reported in 2009 (14) S.T.R. 289 (Bom.). In the said case the dispute was whether particular activity would get covered under the mining service or supply of tangible goods service. The two activities are wide apart and it is in that context that Honble High Court has made certain observations. Similar is the position in the case of Jetlite (India) Ltd. Vs. CCE, Delhi (supra) . Under the circumstances we reject the appellants contention in this regard.
7. The other contention raised by the appellant is with reference to the limitation. We find that the demand notice has invoked the extended period. The main contention of the appellant is that audit was carried out and therefore there was no question of invoking the extended period. We do not find the contention to be sustainable as there is no such stipulation under the relevant law. The appellant was registered as stock broking service and the audit would confine to the duty payments made relating to stock broking service. In any case audit period and the period under the present show cause notice are different. The demand in the present case is after the audit period. The other contention raised by the appellant is that the Board Circular itself states that a doubt has been raised and under the circumstances extended period cannot be invoked. 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. This itself indicates willful intention to evade service tax. Appellants had not undertaken any registration relating to Management Consultancy Service and thus suppressed their activity from the departmental and therefore they have contravened the provisions of Service Tax Act and Rules with a willful intention to evade duty. Under the circumstances we consider that they have satisfied the requirements of Section 73 of the Finance Act, and extended period is correctly invoked and are also liable to penalty under Section 76,77 and 78 of the Finance Act, 1994.
8. In the result, the appeal is dismissed.
(Pronounced in court on .) (S.S. Kang) Vice President (P.K. Jain) Member (Technical) Sm ??
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