Whether activity of liasoning and representation covered under consultancy services?

Case:-COMMR. OF SERVICE TAX, MUMBAI VERSUSESSEL CORPORATE SERVICES PVT. LTD.

Citation:-2015 (37) S.T.R. 943 (Tri. - Mumbai)

Brief facts:- The respondent is a group company of Zee Telefilms Ltd., Essel Propack Ltd. and Pan India Infravest Network Pvt. Ltd. The respondent was created and working as a central hub for all the group companies in connection with various matters of common interest to the group, policy decision, facilitate and co-ordinate group activities at a common corporate platform, facilitate, agreements for corporate requirements with local or foreign parties, equity participation etc. The respondent has been providing the following functions as and when required by each of the companies :-
(i)         Liaison with various government and other statutory authorities for various work related to the group of companies;
(ii)        Administrative support for maintaining public relations, Media and newspapers and government;
(iii)       Proprietary Internal Audit;
(iv)       Banking and loan arrangements with bank and financial institutions from time to time as required, financial participation, private placement, mergers, acquisitions, demerger etc.;
(v)        Assisting in compliance with various statutes;
(vi)       Assisting in compliance with FEMA and other related matters;
(vii)      Assisting in company secretarial and other related matters;
(viii)      Assisting and preparing various legal agreements, liaison with the advocates, solicitors, for finalizing legal agreements and
(ix)       Any other matter as may be required from time to time.

During the period August, 2002 to April, 2005, they provided the following services to the three group companies:

I. M/s. Zee Telefilms Ltd.
(i)         Co-ordination and assisting in FCCB issue worth US $ 85 mn., co-ordinating activities on bidding for cricketing rights, in BCCI matter, getting various borrowing facilities etc.
(ii)        co-ordinating for getting approval from the Ministry for Information and Broadcasting for up linking of Alpha Channels, Zee News,. Zee Cinema, Zee TV, Alpha Telgu & Zee Business Channel etc.
(iii)       Co-ordinating and co-operating for Corporate Restructure of ZTL;
(iv)       Liaise and lending administrative support for JV/Acquisition with/of Turner, ETC, Padmaliya, Aplab etc.
(v)        Liaise and giving administrative support for legalization of the DTH participants & related agreements;
(vi)       Liaise and advise on legal documents, consultations with lawyers, advocates, solicitors for proposed ADR issue;
(vii)      Liaise with advocates, solicitors, advisors for restructuring of Indian & Foreign subsidiaries e.g. Merger of Kaveri, DML, E-connect, El Zee, Patco, ZTIL, EFHI, Zee MGM etc.

II Essel Propack Ltd :
(i)         Co-ordination on various issues for negotiation of the contract;
(ii)        Co-ordination on various issues involved in setting up WOS in USA
(iii)       Co-ordination on various issues on P & G project evaluation and options for funding;
(iv)       Support on media release of result and getting press coverage;
(v)        Co-ordination and support on drafting of Chairman’s statement, Directors Report, Management report and issues relating to AGM;
(vi)       Support on media release of result and getting press covered co-ordination on various issues involved in acquisition of additional Equity shares of Beri Essel. and
(vii)      Co-ordination on various issues involved in getting additional working capital loan of Rs. 7 cr. From SBI.

III Pan India Infravest Network Pvt. Ltd.:
(i)         Co-ordinating for fund requirement with Standard Chartered Bank for Term, load and other UC facilities to the tune of Rs. 68 Crore;
(ii)        Liaise and co-ordinating on Capital Structuring and fund management from time to time;
(iii)       Ensuring compliance and Advising on Central Sales Tax & State Sales Tax matters from time to time.
(iv)       Ensuring compliance and Advising on Cash Management System and Negotiation with Standard Chartered Bank for finalizing their CMS product and advising on entire collection management system from more than 5000 retailers scattered across India;
(v)        Coordinating on Investment of surplus fund from time to time;
(vi)       Liaison with various State Government for sale of Lotteries in their state;
(vii)      Preparation of Tender documents for obtaining license to run lotteries of various State Government;
(viii)      Liaison with various state lottery departments for smooth running of business operation;
(ix)       Liaise and drafting of legal papers for retailers schemes keeping in mind changing market scenario;
(x)        Coordinating marketing/media planning comprising press/television/radio advertisement and other ground/business promotion activities to make retailers scheme/various games popular;
(xi)       Guide and coordination on game pattern and draw timings to suit market conditions and competitive scenario;
(xii)     Conducting proprietary internal audit and there by ensuring adherence to company policy and procedures; and review of internal controls and
(xiii)      Advising on legal matters from time to time.

A demand notice was issued to the respondent demanding Service Tax under the category of “Management Consultancy Services”, on the above mentioned activities. In the impugned order, the adjudicating authority has dropped the demand on the ground that the activity of Liasoning & Representation are not consultancy services and hence not liable to Service Tax. The revenue is in appeal against the said order.

Appellant’s contention:- The Ld. Commissioner (A.R.) on the other hand stated that definition of ‘management consultancy service’ is not limited to providing advice and consultancy but to any service either directly or indirectly in connection with the management of any organization. It is only in the second part of the definition the word advice, consultancy are included. Even in addition to the advice and consultancy, it includes technical assistance. The ld. A.R. further stated that activities like issuing FCCB worth US$ 85 Million is definitely an activity which should come within the scope of management consultancy. Similarly, activity relating to bidding for cricketing rights in BCCI. Getting various borrowing facilities are management functions. The word ‘co-ordinating’ used in the list of activities given by them implies advising and discussing. They advised their group companies and also held discussions with other agencies. Thus, the activities carried out by them are covered by the definition of management consultancy. Even for certain activities they themselves have used the word advising. The ld. A.R. further argued that with Provident Fund department, they themselves have got registered as consultancy organization.

Respondent’s contention:-The ld. Consultant for the respondent was asked by the Bench whether they had any agreement with various companies to whom they have provided different services, ld. consultant stated that there is no written/formal agreement and whatever has been done is based upon the oral instructions. Ld. Counsel was also asked whether any invoices have been raised for different services provided to their group companies, ld. consultant stated that there are no separate invoices as the amount was charged on monthly basis and not item wise or for any specific service/activity. Ld. Consultant’s main contention was that the functions done by them were executory in nature and not relating to advice or consultancy and therefore, the said services cannot be held as management consultancy services. Further, the ld. consultant quoted the following judgments to support his contention that the services provided by them cannot be considered as management consultancy services:-

1.         Basti Sugar Mills Co. Ltd. - 2007 (7)S.T.R.431 (Tri.-Del.);
2.         Basti Sugar Mills Co. Ltd. - 2012 (25)S.T.R.J154 (S.C.)
3.         Futura Polysteres Ltd. - 2011 (24)S.T.R.751 (Tri.-Chen.);
4.         Bharti Televentures Ltd. - 2013 (30)S.T.R.148 (Tri.-Del.);
5.         Sundaram Finance Ltd. - 2007 (7)S.T.R.55 (Tri.-Chen.);
6.         BSR &Co. - 2013 (30)S.T.R.242 (Tri.-Del.);
7.         Ernst & Young Pvt. Ltd. - 2012 (27)S.T.R.462 (Tri.-Del.);
8.         Galaxo Smithkline Pharmaceuticals Ltd. - 2006 (3)S.T.R.711 (Tri.-Mum.) = 2005 (188)E.L.T.171 (Tri. - Mum.);
9.         Circular No. 1/1/2001 (ST-Sec. 37-B), dated 27th June 2001;
10.       Statutory Definition of Public Relation Services and Legal Services;
11.       United Telecoms Ltd. - 2011 (22)S.T.R.571 (Tri.-Bang.);
12.       Brindavan Beverages (P) Ltd. - 2007 (213)E.L.T.487 (S C );
13.       Shyam Enterprises - 2011 (23)S.T.R.29 (Tri.-Del.);
14.       Hindustan Ferodo Ltd. - 1997 (89)E.L.T.16 (S.C.)
15.       Sharma Chemical Work - 2003 (154)E.L.T.328 (S.C.).

Reasoning of judgement:-They find that there is no agreement for providing various services. Similarly, there is no invoice to understand the nature of service. However, going through the list of various activities, they note that what is being done is not executory routine or operational functions but the management function wherein the respondent is advising their other group companies to handle a particular issue in a particular manner and they also undertake such discussion with various other organizations such as financial organizations, banks, BCCI, Govt. bodies etc. The term “Management Consultant” has been defined under Section 65(65) 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 up-gradation of any working system of any organization”.

The said definition has two parts. In the first part, the management consultant is defined as any person who is engaged in providing any service either directly or indirectly, in connection with the management of any organization in any manner. The second part of the definition which is an inclusive part extends the scope of the definition to any person who renders any advice, consultancy or technical assistance relating to conceptualizing, devising, development, modification, rectification or up-gradation of any working system of any organization. Keeping in view the limited information made available by the appellant, in their view, number of activities would get covered in the first part of the definition. They also note that the activities being undertaken by them include advice and consultancy also. In certain cases they are doing executory function also but such executory functions are connected with the advisory functions and are not related to routine or operational functions. They, therefore, are of the view that the services provided by the respondents would be covered within the scope of “Management Consultancy Services.”

They have gone through various case laws submitted by the respondents and find that the facts in those cases are distinguishable from the present situation and are therefore, not applicable. In the case of Basti Sugar Mills(supra), the assessee had taken over the management of another sugar mill and was running the other sugar mill on day to day basis. It is in this context that the Tribunal held that the activity will not be covered within the management consultancy service. In the case of Futura Polysteres Ltd. (supra) the issue was relating to industrial law practitioner and it is in that context that the tribunal held that they are not providing management consultancy services. In the case of Bharati Televentures Ltd. (supra) the issue was relating to liaison work for concluding agreements with other telecom companies wherein the assessee was asked to discuss and conclude agreements relating to interconnect agreements. In the case of Sundaram Finance Ltd. (supra) the assessee was providing services of credit processing or underwriting, loan documentation, portfolio administration and Revenue accounting service etc. which were held to be covered under Business Auxiliary Service other than management consultancy service. In the case of BSR & Co. (supra) the assessee was representing the clients for tax compliance work. Similar is the position in the case of Ernst & Young Pvt. Ltd. (supra). In the case of Galaxo Smithkline Pharmaceuticals Ltd. (supra) service rendered towards publicity, freight, travelling, power and fuel, rent and miscellaneous expenses were held not covered under the definition of management consultancy services. In fact, the Board vide Circular No. 1/1/2001-S.T., dated 27-6-2001 has held that services rendered in respect of merger and acquisition are covered under the definition of management consultant. They find that similar services had been provided by the respondents in the present case. They do not consider it necessary to discuss the other judgments as the facts are totally different.

Another issue raised by the ld. consultant for the respondent was that the show-cause notice invoked the extended period of limitation and keeping in view the nature of dispute, extended period of limitation cannot be invoked. They observe that the respondents had not taken the registration with the Service Tax department during the said period and therefore, no returns or documents were filed. There was no reason for the respondents not to take the registration. Facts were suppressed from the department. In view of these facts, they find that the conditions stipulated under the proviso to Sec. 73(1) of the Finance Act, 1994 are fulfilled and they therefore hold that the extended period of limitation has been correctly invoked. In view of the said position, penalty under Sec. 78 is imposable. They, accordingly, impose penalty under Section 78, equal to the duty amount. Penalty under Sec. 76 as per the provisions existing at that point of time would be leviable. Similarly, penalty under Sec. 77 amounting to Rs. 5,000/- (Rupees Five Thousand only) would also be leviable.

In the result, the appeal of the Revenue is allowed.

Decision:-Appeal allowed.

Comment:- The analogy of the case is that from perusal of the scope of work done it was found that it consisted of liasoning, representation work which is in the nature of advisory services and is liable to service tax under management consultancy services. Only the executory functions that are not connected with advisory functions are excluded from consultancy. In the present case, the activities were not limited to executory or operational functions and so the reliance placed on various decisions was rejected. Hence, the activities undertaken by the assessee was held to be covered under the Management Consultancy service.

Prepared by:- Monika Tak

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PJ/CASE-LAW/2015-16/2747

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