Custom, Excise & Service Tax Tribunal
M/S. Jubiliant Enpro (P) Ltd vs C.C.E Noida on 24 November, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE
TRIBUNAL, PRINCIPAL BENCH NEW DELHI
COURT NO. I
Date of Hearing:25.07.2014
Date of Order:24/11/2014
Misc. Application No. ST/Misc./55864-55865/2013 in
Appeal No. ST/711,722/2007 CU[DB]
M/s. Jubiliant Enpro (P) Ltd. Appellant
Vs.
C.C.E Noida Respondent
Appearance:
Sh. B.L.Narsimhan, Advocate- for the Appellant Sh. Amresh Jain, DR for the Respondent Coram :
Honble Mr. Justice G.Raghuram, President Hon'ble Mr. R.K., Member (Technical) FINAL ORDER NO. 54492-54493/2014 Per Sh.R.K.Singh:-
The appellants filed this appeal against Order-In-Original No.31/Comm./NOIDA/2007 dt.05.09.2007 in terms of which the demand of Rs.3,51,19,838/- pertaining to the period from 01.09.2002 to 30.09.2005 has been confirmed along with interest and penalties.
2. The facts, briefly stated, are as under:-
(i) The appellants were allegedly engaged in the business of rendering Management Consultancy Service to M/s. Transocean and M/s. Tide Water during the period 01.09.2002 to 30.09.05 and Business Auxiliary Service to M/s. Helicopter Asia Ltd. M/s. Standard Aero Ltd. M/s. S.T. Aerospace Systems, M/s. Aeno Space Engineering and M/s. Northstar Aerospace during the period 01.07.2003 to 19.11.2003 and 15.03.005 to 30.09.2005.
(ii) The scope of services rendered by the appellants to M/s. Transocean and M/s. Tide Water, were listed in the agreement entered into by the appellant with these entities and are described in the table below:-
S.NO.
ACTUVITIES PERFORMED
1. Assist the company in obtaining work at acceptable rates;
2. Advise and assist the company on the commercial aspects of preparation of bids and subsequent contract negotiations;
3. Keep the Company advised on current developments in the territory which may affect its business and operations;
4. Upon request, advise the Company regarding securing Government licenses, permits and certificates as may be required with respect to its business and operations;
5. Upon request, advise the Company regarding obtaining visas and labour permits for entry into and departure from India of the Companys personnel in connection with any Work;
6. Advise the Company from time to time on the importation into and exportation out of India of all vessels, equipment, supplies, materials and consumables requested by the Company in connection with any Work;
7. Assist the Company on the importation and exportation of the drilling rigs in and out of India;
8. Advise the Company concerning commercial problems or issues which may from time to time arise with respect to any Work and, at the request of the Company and within the limitations imposed by the Agreement, use its best efforts to help to resolve favorably any such problems or issues;
9. If requested, assist the Company in preparing and collecting the Companys billings for any Work;
10. Advise the Company as requested on the purchase in India of equipment, supplies, services, dry-docking, repairs etc. that may be required in connection with any Work;
11. Advise the Company on matters of government relations, rulings and requirements, taxation and legal matters and accounting practices that may be reasonably related to any Work, provided that, if the Company requests the assistance from legal or other exports not employed by Enpro on matters concerning any Work, the costs incurred will be borne by the Company subject to the said costs having been approved in writing by the Company in advance of any obligation of payment;
12. Advise the Company as requested on matters of housing, office facilities and the hiring of local personnel with respect of any work;
13. Bring to the attention of the Company any improper or wrongful use of the Companys name, patents, trademarks, emblems, designs, models or other similar industrial or commercial patented or proprietary rights which come to Enpros notice;
14. Render its best efforts, within the limitations imposed by this Agreement, to promote goods relations, between the Company and its clients;
15. Provide the Company up-to-date information on the operations, business organization and practices of the Companys competitors in India, but only to the extent such information can be obtained in a legal manner and from sources other than the competitors themselves;
16.
Provide the Company expert advice concerning the following laws and regulations:
a. Foreign Exchange Regulation Act b. Mines Act c. Labour Laws d. Industrial Disputes Act e. Oil Fields Regulation and Development Act f. Petroleum & Natural Gas Act g. Income Tax Act h. Territorial Waters, Continental Shelf, Exclusive, Economic Zone and other Maritime Zones Act i. Customs Act and;
17.
Advise the Company with respect to current economic and political developments in India.
(iii) The appellants had also entered into Sales Representative agreements with M/s. Halicopter Asia (PTE) Ltd., M/s. Honeywell International Inc., M/s. Standard Aero Ltd., M/s. ST Aerospace Engineering (PTE) Ltd. and M/s. Northstar Aerospace. The service rendered under the said agreements was in connection with the promotion of sale of goods/services of the said foreign supplier in India.
The Adjudicating Authority confirmed the demand alongwith interest and penalties invoking extended period holding that:
(i) service rendered to Transocean and Tidewater groups fell in the category of Management Consultancy Service,
(ii) service rendered under sales representative agreements to Helicopter Asia et al fell under Business Auxiliary Service and
(iii) the appellants were guilty of wilfull misstatement/suppression of facts with intent to evade service tax.
3. The appellants have contended as under:-
(i) The term Management Consultant was defined in Section 65(65) of the Chapter V of the Finance Act, 1994 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 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. The Taxable Service is defined in section 65(105)(r) of the Act as under:-
any service provided to a client, by management consultant in connection with the management of any organization in any manner.
(ii) Management Consultancy is an advisory service while the service rendered by them was in the nature of executionery service. They stressed the difference between the Managerial function and operations as well as the concept of management and refered to certain judgments with regard thereto. They also contended that Management Consultancy Service is different from Business Consultancy Service which was incorporated as a taxable services w.e.f. 01.06.2007 .
(iii) The Order-in-Original passed by the Ld. Commissioner seems to suggest that any advice or consultancy or technical assistance rendered by a service provider in connection with the business of the service receiver is covered by Management Consultancy Service. In this connection, they contended that Management Consultant has been substituted vide Finance Act, 2007 by the expression Management or Business Consultant with effect from 01.06.2007. This clearly shows that before this amendment, Business Consultancy service was not a taxable service. In other words, Management Consultancy Service covered only those services which related to the management of an organization. Therefore, even going by the finding given by the Ld. Commissioner that the Appellants had rendered consultancy to the Foreign Service Providers in connection with their business in India, such services would be liable to service tax only with effect from 01.06.2007 and not before that.
(iv) Their service is more appropriately covered under Business Support Service which came into effect from 01.05.06, or under Business Consultancy Services which was incorporated with effect from 01.06.2007.
(v) They also referred to the following judgments among others:-
(a) Glaxo Smithkline Pharmaceuticals Ltd. Vs. CCE 2004(188) ELT-171 (Tri.-Mum.)
(b) Commissioner of Central Excise Vadodara Vs. Arvind Narayan Prasad Nopary 2008 (11) STR 353 (Tri.-Ahm).
(c) Board of Control for Cricket in India Vs.CST 2007-TIOL-684-CESTAT-MUM.
(d) Telephone Cables Ltd. Vs. CCE 2007 (7) STR 657 (Tri.-Del)
(e) Bharti Televentures Ltd. Vs. Commissioner of Central Excise Delhi-I 2013 (30) STR 148 (Tri.-Del.)
(vi) So long as the consideration was received in convertible foreign currency, the service tax was exempt during the entire period by virtue of it being export of service.
(vii) As regards a part of payment received by the appellants from ONGC in respect of service rendered to the foreign service providers (M/s. Tidewater and M/s. Transocean) the same is to be considered as payment received in convertible foreign currency because ONGC was required to pay a quantum of sum in foreign currency to the same foreign service providers who were to pay the appellants and the ONGC deducted an equivalent amount from the amount due to be paid by them to the foreign service providers and sent that amount to the appellants here in India. It is contended that it has been held by Honble Supreme Court in the case of J.B. Boda and Co. Pvt. Ltd. Vs. CBDT [1997] 223 ITR 271 (SC) and Indian Hume Pipe Co. Ltd. Vs. CBDT [1987] 165 ITR 537 (Bom.) that such payment is to be regarded as payment received in foreign exchange.
(viii) There is no willful mis-statement/suppression of facts on their part and the contraventions, if any, were on account of bonafide belief that they were not liable to pay service tax and that mere non-registration or non-filing of returns does not amount to suppression/willful mis-statement. They referred to several familiarjudgments in this regard.
(ix) No penalty is imposable in view of the fact that there was no mens rea and issue involved interpretation of Law. They quoted certain judgments in this regard including the one of DCW Ltd. Vs. Asstt. CCE, 1996 (88) ELT-31 (Mad.)
(x) Penalty under sections 76 & 78 cannot be simultaneously imposed as held in case of Financers Vs. CCE Jaipur reported in 2007(8) ELT (Tri. Del.).
(xi) As regards the demand under Business Auxiliary Service for services rendered under sales representative agreement to M/s. Halicopter Asia (PTE) Ltd. and others mentioned earlier, the appellants have contended that the said service would fall under category of export of service as the payments were received in convertible foreign exchange. They also said that they were eligible for exemption under Notification 13/2003-ST dated 20.06.2003 as they were basically acting as commission agent.
4. The Learned AR contended that the service rendered by the appellants to M/s. Transocean and M/s. Tide Water clearly fell under the category of Management Consultancy Service because the service rendered was not executionery but advisory. He stated that as is evident from the description of service rendered by the appellants they were clearly providing consultancy with regard to the various aspects of management and therefore it was covered under Management Consultancy Service. He said that the management consultant plans the work and not work the plan and the service rendered by the appellants was essentially in the nature of providing consultancy in relation to planning the work and not working the plan. He also referred to CBEC Circular No. 1/2001-ST (section 37B) dt. 27.06.2001 wherein the expression Management in Management Consultancy have been elucidated to stress the point that the impugned service fell in the category of Management Consultancy Service.
5. As regards the payment received directly from ONGC. Ld. AR said that the same having been received in Indian Rupees from an Indian Company can not be called to have been received in foreign exchange. As regards the service rendered to M/s. Helicopter Asia et al, he conceded that as the payment was received in foreign exchange the CESTAT Larger Bench judgment in case of Paul Merchants Vs. CCE, Chandigarh 2013 (29) STR 257 (Tri.-Del) would be applicable.
6. We have considered the submissions made by both sides. A careful perusal of the appellants services to M/s. Transocean and M/s. Tide Water detailed is para 2 above makes it clear that the appellants were advising the clients about various aspects relating to Management. The services are not executionery in nature and are clearly advisory in nature. The definition of Management Consultant is so worded that the services performed by the appellants clearly fall within its scope and for that one only has to read the definition of Management Consultant quoted earlier vis-`-vis the description of impugned services (detailed in para 2) to come to such finding. The expressions like any service, either directly or indirectly, in-connection with the management, in any manner appearing in the definition of Management Consultancy Service are expressions which are expansionary rather than restrictive. Thus, this definition is wide enough to include advisory services rendered in connection with the management of an organisation. The services rendered to M/s. Transocean and M/s. Tidewater as enumerated earlier clearly show that predominantly predominant parts of the said services were advisory (not executionery) and the advices (services) were directly connected with the management of the companies the services were rendered to. The said advices (services) rendered related to conceptualizing, devising, development, modification, rectification or upgradation of the working system of the said companies. Advices on commercial aspects, current developments, import and export policy of India, potential problems and solutions, marketing strategies, alerting them about potential misuse of their IPRs, economic & political scenarios etc. were clearly applicable to and useful for the working systems of these companies (M/s. Tidewater & M/s. Transocean) and thus clearly fell within the ambit of role of management consultant as defined earlier. Thus the impugned service clearly qualifies for the status of Management Consultancy Services; some of its minor fringes being subsumed there-under by virtue of Section 65A (2) (5) of Finance Act, 1994. The appellants attempt to elucidate the meaning of Management Consultancy by reference to meaning of the word Management is not really germane because the expression Management Consultant and Management Consultancy Service are clearly defined in the Finance Act 1994 itself and therefore one doesnt have to, indeed one can not, look beyond the statutory definition for the purpose of classification in this case. It is well settled that for the interpretation of statutes one has to go by the definition of a term contained in the statute regardless of its dictionary or other meanings or its definitions in other statutes. The service which was the subject matter of M/s. Glaxo Smithkline Consumer Healthcare Vs. CC, Mumbai II (supra) was essentially in regard to market development, marketing and sales and hence was not similar to the impugned service. The service involved in the case of Bharti Televentures (supra) was essentially liaisoning. Indeed, none of the other case laws cited by the appellants for pressing that the impugned service is not Managements Consultancy Service dealt with service of the nature described in para 2 above.
7. Regarding the appellants contention that the said services would be appropriately covered in the category of support services of business or commerce, or Business Consultancy Service, the same is not tenable because as per the definition of support service for business or commerce, the activities covered thereunder are essentially executionery in nature. Further the impugned service clearly fell under the scope of Management Consultancy service as analysed earlier and therefore the conversion of Management Consultancy Service into Management or Business Consultancy Service would make no difference whatsoever about the appellants liability. We are not eager to discuss this argument in greater detail simply because while interpretational support from later legislative developments is not to be spurned, such a support is unwarranted and unnecessary when there exists no ambiguity which is needed to be resolved. As has been discussed earlier, the impugned services rendered to Transocean/Tidewater categorically and unambiguously fall within the ambit of Management Consultancy Service. A perusal of the changes brought about in the definition when the Management Consultant was changed into Management or Business Consultant reveals that the impugned service to Ms/. ONGC is not covered under Management or Business Consultancy Service any more than it was covered under Management Consultancy Service where it is/was fully covered.
8. The appellants strenuously argued that the amounts paid by the ONGC to them should be treated as being tantamount to having been received in foreign exchange. This contention is not tenable because ONGC paid the amount in Indian Rupees. Such payments do not reflect in the Govt. records as foreign exchange received in the country nor such payments reflect in the trade statistics of import and export. These are not mere procedural aspects and have legal and policy consequences. For example such payments being in India Rupees within India would not be subject to the rigors of the requirements of various statutes e.g. Foreign Exchange Regulation Act. Similarly, as they are not reflected in international trade statistics or the foreign exchange inflow/outflow data of India, they would not form part of the data analysis for the purpose of various policy formulations. This is being stated to illustrate that even for practical purposes such payments received by appellants can not be treated as having been received in foreign exchange. Legally, they are obviously not payments received in foreign exchange and cant be so treated. The appellants have stated that the impugned payments should be treated as payments received in foreign exchange in view of the Honble Supreme Courts judgment in case of J.B. Boda and Co. Pvt. Ltd. Vs. CBDT [1997] 223 ITR 271 (SC) and Honble Bombay High Court judgment in case of Indian Hume Pipe Co. Ltd. Vs. CBDT [1987] 165 ITR 537 (Bom.). The judgment in case of G. B. Boda was in connection of Income Tax Act and in that case the Reserve Bank of India (RBI) was kept in the loop. The Bombay High Court judgment in the case of India Hume Pipe (Supra) was also in relation to Income Tax Act and there too RBI had been kept in the loop. Thus, the ratio of these judgments particularly of the judgment of Supreme Court in the case of GB Boda (supra) is that for treating such payments as payments received in foreign exchange, RBIs nod should be there which is absent in the present case. It is pertinent to mention that once the RBI is taken in the loop, such transactions will not go unnoticed for the purpose of the relevant data bases of Indias international trade and foreign exchange transactions and will also not remain under the radar of the laws relating thereto. Thus, the impugned payments made by ONGC to the appellants do not merit to be treated as payments received in foreign exchange.
9. As regards the services rendered under the sales representative agreements to Helicopter Asia(PTE) and others, we have perused a representative agreement. We find that it clearly and conspicuously covers promotion of the service recipients goods/services in given territory (para 2 of the agreement) and therefore squarely falls within the definition of Business Auxiliary Service (given in Section 65(19) of Finance Act 1994) which specifically includes service in relation to promotion and marketing of goods and services. Thus, there is no ambiguity about the impugned service being squarely covered under the category of Business Auxiliary Service making their contention for classification under support service for business or commerce untenable. Their claim for exemption under Notification No. 13/2003-ST on the ground of being commission agent is obviously untenable as they clearly do not fall under the definition of commission agent (given in the said notification) quoted below :
Explanation.-For the purposes of this notification, commission agent means a person who causes sale or purchase of goods, on behalf of another person for a consideration which is based on the quantum of such sale or purchase. As is evident from the sales representative agreements the appellants role includes promotion of the services recipients goods/services and is thus clearly different from that of a commission agent as defined above.
10. With regards the allegation of suppression of facts/willful mis-statement, it is relevant to note that the appellants did not take registration, did not file any returns and also did not pay service tax due. They have merely stated in their defence that they had bonafide belief that they were not liable to pay the impugned service tax and cited several familiar decisions of Supreme Court essentially to the effect that mere negligence or failure on the part of the manufacturer does not attract extended period and something positive other than mere inaction or failure on the assessees part or conscious withholding of information when the assessee knew otherwise is required for invoking extended period. They have however not given any basis as to how they developed/entertained such a belief. They are not some small time operators. There is not a word as to what reasonable steps they took to arrive at their claimed bona fide belief; whether they sought any legal advice or whether they consulted some professional/trade associations or ascertained the industry practice. Admittedly, if the assessee fails to take registration or fails to pay service tax under a bonafide belief that they are not liable to service tax, allegation of suppression/willful misstatement cant be sustained. But mere uttering of the words bonafide belief does not even make it a belief, leave alone bonafide belief. For example, an individual having an annual income of several lakhs of Rupees, when caught cant get away by simply claiming that he was under bonafide or reasonable belief that he was not liable to pay income tax. Bonafide or reasonable belief has to be an informed belief of a reasonable person. For a service provider of this stature, something positive has to be shown to demonstrate that they had made reasonable efforts or had taken reasonable steps to ascertain legal position with regard to taxability of their impugned activities for the purpose of forming their purported reasonable belief. Mere presumption of non-taxability can never be equated to reasonable belief in that regard. Thus, the conclusion is inescapable that they deliberately did not take registration and pay the impugned service tax with a view to escaping the liability and when caught, pretended to be having reasonable belief about the non-taxability. Thus invocability of extended period and mandatory penalty is unexceptionable.
11. As regards to appellants contention that no Service Tax is payable on services rendered by them for which the proceeds were received is convertible foreign currency, we find that the appellants contention is valid in view of the CESTAT Larger Bench judgment in case of M/s. Paul Merchants Ltd. (supra) read with Notification 6/99-ST, 21/2003-ST and Export Service Rules but for the intervening period from 01.03.2003 to 19.11.2003 during which too the service tax is not to be recovered in terms of Boards Circular No. 56/5/2003-ST dated 25.04.2003 which categorically declared that service tax being destination based consumption tax is not applicable on export of services and which we are willing to follow as it has been followed by the field formations for the said purpose. However, as discussed earlier, the payments made by ONGC in Indian Rupees can not be treated, or deemed to be, payments received in (Convertible) foreign exchange. Such payments amount to Rs. 27,35,41,716/- and the (corresponding) service tax amounting to Rs. 2,07,96,620/- is thus leviable and recoverable.
12. The appellants have also argued that once penalty under Section 78 has been imposed, penalty under Section-76 of Finance Act,1994 should not be imposed. We find that Punjab & Haryana High Court in several cases (viz CCE Vs. First Flight Couriers Ltd. 2011-TIOL-67-HC-P&H-ST, CCE-Chandigarh-I Vs. M/s. Cool Tech Corporation 2011-TIOL-23-HC-P&H-ST, CCE Vs. Pannu Property Dealers Ludhiana 2010-TIOL-874-HC-P&H-ST) has held that even if at the relevant time the penalties under Section 76 & 78 were not mutually exclusive, once penalty under Section 78 has been imposed, penalty under Section 76 ibid may not be justified. We also have no difficulty in agreeing with the appellants that maximum penalty under Section 77 was only Rs. 1000/-.
13. The appellants have questioned the issue of computation of impugned demand. We find that they took up this issue before the adjudicating authority also who also dealt with it. It has been clearly recorded in the Order-in-Original that they did not produce any documentary evidence to question the computation made by Revenue. They have not disputed this observation of the adjudicating authority. Therefore this plea at the appellate stage in the absence of any valid ground as to why they could not produce the documentary evidence before the adjudicating authority can not be entertained.
14. In the light of para 11, the impugned service tax on Business Auxiliary Service amounting to Rs. 34,90,671/- is not sustainable. Similarly impugned service tax demand relating to Management Consultancy Service for which payment was received in foreign exchange (which does not include the payment received from ONGC) amounting Rs. 1,08,32,547/-also does not survive. Resultantly, only demand of Rs. 2,07,96,620/-is sustainable alongwith interest and mandatory equal penalty.
15. In the light of the foregoing the appeal is partially allowed inasmuch as impugned order is modified only to the extent that the demand confirmed is reduced to Rs. 2,07,96,620/- penalty under Section 78 ibid is reduced to Rs. 2,07,96,620/- penalty under Section 77 is reduced to Rs. 1000/- and penalty under Section 76 ibid is set aside.
[Order Pronounced on 24/11/2014] (Justice G.Raghuram) President (R.K.Singh) Member (Technical) S.Kaur 18