Private placement of shares falls under merchant Banking services.

PJ/Case law/2014-15/2268

Case:- TRIUMPH INTERNATIONAL FINANCE INDIA LTD. VERSUS C.S.T MUMBAI-I

Citation:-2014(35) S.T.R.338 (Tri-Mumbai)

Brief facts:- The appellant was registered with SEBI under merchant bankers regulations, 1992 and provided some merchant banking services for the private placement of equity shares against which 25 lac shares were allotted. The department was of the view that activity undertaken by the appellant is management consultancy services and therefore a notice was issued demanding service tax of Rs. 13,12,500/- along with interest thereon.

Appellant’s contention:- The learned consultant for the appellant submitted that the period of dispute involved in this case is January 2000. And by rendering the service of private placement of equity shares they have not undertaken any activities which come within the scope of management consultancy services. On the other hand these services come under merchant banking and other financial services wherein initially the levy was restricted on banking companies and NBFCS which is now extended to cover body corporates also. Hence services rendered by them fall under merchant banking services.

Respondent’s contention:-The respondent strongly refutes the contentions of the learned consultant and submits on the basis of board’s circular no. 1/1/2001 dated 27-6-2001 that management generally means running the affair of an organisation in an organised and systematic manner it encompasses both on strategic and operational level functioning and involves a wide variety of clearly defined activities across organisational sub-units. Management is an inclusive term and would include management consultant and any adviser who renders services on any aspect of management also the financial advisory services rendered in merger and acquisition transactions are clearly in the nature of services in connection with the management of an organisation.

Reasoning of judgement:- The bench observed thatManagement consultancy service under clause(65) of section 65 of finance act means
“management consultant” means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organisation or business in any manner and includes any person who renders any advice, consultancy or technical assistance, in relation to conceptualising, devising, development ,modification, rectification or upgradation of any working systems of any organisation.
Merchant Banking and Other Financial Services under clause(12) of section 65 means
Any services provided in relation to such issue management either by making arrangements regarding selling buying or subscribing securities as manager, consultant, advisor or rendering corporate advisory services in relation to such issue management. This inter alia consists of preparation of prospectus and other information relating to the issue, determining financial structure, tie up of financiers and final allotment and refund of subscription for debt/equity issue management and acting as an advisor, consultant, co-manager, underwriter and portfolio manager it also includes advisory services on corporate restructuring, loan restructuring, debt or equity restructuring etc. fees charged by the merchant banker for rendering these services will be taxable value in respect of this service.
The learned consultant in his rejoinder submits that even if it is held that the activities undertaken by them would come under management consultancy services the demand would be hit by time bar so no malafide can be alleged against the appellant.
The appellant is registered as merchant banker under the SEBI regulations and also private placement of shares fall under the definition of merchant banking services as specified above therefore the confirmation of demand under management consultancy services is not sustainable under law.

Decision:-Appeal is allowed.

Comment:- The crux of this case was thatthe activity of private placement of shares falls under the defination of merchant banking services and not under category of management consultancy services.It was further concluded that since the period under consideration in appeal was from January, 2000 and merchant banking activities rendered by body corporate came under the tax net w.e.f august 2002, no service tax was leviable on merchant banking activity rendered by a body corporate for the period prior to August, 2002.

Prepared by: Shruti Bhandari

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PJ/Case law/2014-15/2268

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