Customs, Excise and Gold Tribunal - Delhi
Glaxo Smithkline Consumer Healthcare ... vs Cce on 20 February, 2007
Equivalent citations: 2007(120)ECC373, 2007ECR373(TRI.-DELHI), [2007]10STJ105(CESTAT-NEW DELHI), 2007[7]S.T.R.334, [2007]9STT496
ORDER C.N.B. Nair, Member (T)
1. The appellant Glaxo Smithkline Consumer Healthcare Ltd., formerly known as Smithkline Beecham Healthcare Ltd. entered into an agreement on 18th January 1996 with their group company Glaxo Smithkline Asia Pvt. Ltd., formerly known as Smithkline Bichem Asia Pvt. Ltd. The agreement appointed the appellant as a non-exclusive agent to sell products manufactured by or on behalf of the other party. In terms of the agreement, the appellant was to provide comprehensive service in regard to market development, marketing sales and other connected services in regard to the products covered by the agreement.
2. In July 2003, "business auxiliary service" was brought under service tax. On 29-31/07/03 the appellant wrote a letter to the Deputy Commissioner of Central Excise, Gurgaon stating that it is advised that it is not liable to any service tax in relation to the agreement. The letter sought confirmation that the appellant is not liable to pay service tax. The appellant wrote another letter on August 25, 2003 intimating that they were paying tax under protest in the absence of any clarification. On 25/09/03 Assistant Commissioner, Service Tax informed the appellant that service provided by it is covered within the service tax net. Subsequent correspondence and hearing resulted in the passing of adjudication order dated 30 July 2004 holding that the appellant's services attracted service tax under the heading "Management consultancy", a service which was brought under Service Tax in 1998." An appeal filed against that order before Commissioner (Appeals) led to the confirmation of the finding of service tax liability as management consultant under order dated 19/04/05. The present appeal is directed against that order.
3. During the hearing of the case, learned Counsel for the appellant has pointed out that, in regard to an identical agreement between two other group companies of the appellant, the Bombay Bench of the Tribunal has held that the service rended under the contract would fall for tax under the category of "business auxiliary service". Specific reliance is being placed on para '3' of that order. We may reproduce that paragraph:
3. After hearing both sides and considering the material submissions it is found -
(a) The plea of the appellant of being in the business of manufacture & sale of drugs/pharmaceuticals & carrying out of certain day-to-day activities for BWIL, a group company and not a client, without receipt of fee or professional charges for the same & being compensated in actuals will not render them "Management consultant" would ipso facto is not exempt them from the visit of Service Tax, is not accepted following Kerala Colour Labs Association relied upon by the ld. DR. It is the rendering of service that is taxed & not belonging to a profession, trade or calling. The taxable event would arise if the 'Service is rendered'. The considerations to defer the "Service rendered' import full or at profit is not relevant as taxable event will determine the Tax & not the compensation thereof. (see also Parasmal Bam ).
(b) Examining the costs deferred by BWIL it is found that 'other expenses' are on account of following factors for the period 1-1-1998 to 31-12-98 as per letter dated 25-2-99 of the CA) -
Other Expenses Rs. In lakhs Publicity 164.29 Freight 8.63 Travelling 243.51 Power & fuel 0.20 Rent 4.36 Miscellaneous Expenses 167.48 Total 588.47 None of the headings, as per the above certifications, would cover the definition of "Management Consultancy Service" rendered costs. Therefore the levy of Service Tax on these costs cannot be upheld as arrived in the impugned order. Service Tax is in any case not payable on reimbursuant/out of pocket expenses charged on actuals as per the clarifications & Trade Notices of the department.
(c) The staff costs as per the CA certifications are the costs incurred of 8 marketing team which had been allocated to BWIL, based on budgeted turnover for each team. Further, cost of the staff members in Glaxo payroll, working involving exclusively for BWIL, had not been directly cross charged. The gratuity & leave encashment benefit pertaining to the field force staff working for BWIL had not been cross charged. However these amounts were not expected to be material. These charges therefore are executory costs and not advisory costs for marketing the products of BWIL. CBEC vide circular dated 27-7-2001 has clarified that the intention is to Tax the Advisory Services provided by the consultants, and not the Executory Services provided by a contractor. The staff costs as incurred & reimbursed for 8 teams in marketing exclusively for BWIL, as ably presented by the ld. DR, would be conducting Executory Functions & not Advisory Functions. The definition of Management Consultant reads as under -
(65) "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 advise, consultancy or technical assistance, relating to conceptualising, devising, development, modification, rectification or upgradation of any working system of any organisation.
When read with the subsequent coverage of Service Tax levy on "business auxiliary service" which was introduced & defined as in (July 2003) (19) "business auxiliary service" means any service in relation to, -
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customers care service provided on behalf of the client; or
(iv) any incident or auxiliary support service such as billing, collection or recovery of cheques, accounts and remittance, evaluation of prospective customs & public relation services, as a Commission agent, but does not include any information technology service.
Would support the acceptance of the plea made by the ld. Advocate that the nature of the Executory Services provided by the Marketing Team Staff would more appropriately fall under 'business auxiliary service" & not "Management Consultancy service" as the definition of Management Consultancy Service remains the same even after the levy of inclusion & of Service Tax on "business auxiliary service" in the year 2003. When an existing Tariff definition remains the same, then the introduction of new Tariff entry would imply that the coverage under the new Tariff for purpose of Tax is an area not covered by the earlier entry. The new entry is extension of the scope of coverage if Service Tax and not carving out of a new entry, from the erstwhile entry of "Management Consultancy Service". Therefore, it has to be held, that in the facts of this case, the levy of Service Tax on Staff Costs defined by BWIL, under the heading 'Management Consultancy Service' cannot be upheld. Levy on such costs could be an on business auxiliary service, which was not a Taxable Service prior to 2003 & appellant is not a service provider as Management Consultant.
(d) Once that is found, & the appellant cannot be classified as a service provider under 'Management Consultant' levy of Service Tax cannot visit prior to 2003 or after 2003 under and a 'Management Consultant'.
(e) When there is no levy of Service Tax on the appellant, for the Services provided, there was no requirement of registration & filing of return &/or delay payment of any tax during the period under dispute. The penalties imposed are to be set aside along with the demand of tax as made and interest consequent thereon.
4. A perusal of the above order makes it clear that the appellant's service, which is identical to the service considered in the above appeal, would also fall under business auxiliary service from July, 2003. In view of this, tax remains correctly paid. Therefore, no question of demand or refund arises.
5. The appeal is ordered accordingly.
(Dictated and pronounced in the open court)