Whether administrative services classifiable as management consultancy service?

PJ/CASE LAW/2015-16/2695

Case:- TATA AUTOCOMP SYSTEMS LTD. VERSUSCOMMISSIONER OF C. EX., PUNE

Citation:-2015 (37) S.T.R. 252 (Tri. - Mumbai)

Brief facts:- The appeal was directed against Order-in-Original No. 10/P-III/STC/Commr/2008-09, dated 22-12-2008 passed by Commissioner of Central Excise, Pune. Vide the impugned order, the learned adjudicating authority had confirmed a Service Tax demand of Rs. 77,96,803/- against the appellant, M/s. Tata Autocomp Systems Ltd. by classifying the services rendered by them under “Management Consultancy Service” for the period 1-4-2001 to 30-6-2003 along with interest thereon and also imposing equivalent amount of penalty under Section 78 of the Finance Act, 1994. Aggrieved of the same, the appellant filed appeal.

Appellant’s contention:- The learned Counsel for the appellant submitted that the appellant had entered into administrative support agreement with various Tata companies for providing following services:
(i)         Support for Land Acquisition and Development
(ii)        Employees benefit Administration (Provident Fund, Superannuation, Gratuity).
(iii)       Liaison with Banks and Financial Institutions.
(iv)       Legal and Taxation Support Services
(v)        Providing Common Training Facilities
(vi)       Communication infrastructure advisory services
(vii)      Support for manpower recruitment
(viii)      Support for maintaining Industrial Relations
(ix)       Provide Sales and distribution Network
(x)        Knowledge base of Indian material and supplier base
The appellant started discharging Service Tax liability on these various services under the category of “Business Auxiliary Services” (BAS) with effect from 1-7-2003. The department accepted this classification. However, the department was of the view that for the period prior to 1-7-2003, the said activities undertaken by the appellant merits classification under “Management Consultancy Service” and accordingly a show cause notice dated 11-10-2006 was issued demanding Service Tax under the category of “Management Consultancy Service”. The said notice was adjudicated by the impugned order.
The learned Counsel further submitted that subsequent to 1-7-2003, the department had not disputed classification of the services rendered by them. If that be so, the department cannot take a different stand for the period prior to 1-7-2003 as “Business Auxiliary Service” had not been carved out of “Management Consultancy Service”. Further, what they are undertaking were only support services to administration; they were not rendering any advice or consultancy in the matter. Basically they were doing liaison work with the Government agencies, banks and financial institutions, and so on. They also undertake training activities for their staff and the clients. These activities were in the nature of the BAS and cannot be, by any stretch of imagination, construed as “Management Consultancy Service”. He also submitted that they received a consideration of 0.5% of the net sales turnover of the clients for the services rendered. The mode of payment of consideration does not determine the nature of the services rendered. The fact that the payments were received as a percentage of the net sales turn over would indicate that the payment was made in the nature of commission. Management consultancy service did not operate on commission basis and only support of services and not by way of commission. He also placed reliance on the decisions of this Tribunal in the case of CCE v. Arvind Narayan Prasad Nopany - 2008 (11)S.T.R.353 (Tri.)and Maini Industrial Consultants v. CCE - 2006 (2)S.T.R.358 (Tri.) in support of his contention. In these decisions it had been held by this Tribunal that similar services rendered by way of support services would merit classification under “Business Auxiliary Service” and not as “Management Consultancy Service”. Therefore, he pleaded for allowing the appeal by setting aside the impugned order.

Respondent’s contention:- The learned Additional Commissioner (AR) appearing for the Revenue reiterated the findings of the adjudicating authority. It was his contention that the various support services rendered by the appellant would come under the category of technical assistance and therefore it should be construed that the appellant had rendered technical assistance to their clients. Since the “Management Consultancy Service” also included technical assistance in addition to advice and consultancy, it was his submission that the services rendered merit classification under “Management Consultancy Service”. He also relied on the decision of this Tribunal in the case of HSBC Securities & Capital Markets (I) Pvt. Ltd. v. CST, Mumbai - 2014 (33)S.T.R.530 (Tri. - Mum.)wherein it was held that executory function incidental to advisory function would come within the scope of “Management and Consultancy Service”. Since in the present case, the appellant was rendering executory functions, the classification under “Management Consultancy Service” was justified. Accordingly, he pleaded for upholding the impugned order.

Reasoning of judgment:- They perused various services rendered by the appellant as well as the agreement entered into by them with their various clients. From a perusal of these agreements, it was seen that the appellant was rendering administrative support services. They did not give any advice or consultancy as to how to run an organization. The services rendered by them mainly related to support services to run the business of their clients by way of assistance in marketing assistance, in obtaining loans from financial institutions, liaisoning with the Government Agencies for getting various permissions, training of their personnel and so on. These services which were support services for the business do not fall within the category of “Consultancy Service” let alone “Management Consultancy Service”. The decision of this Tribunal in the case of Arvind Narayan Prasad Nopanyand Maini IndustrialConsultants(supra) also confirmed these views. As regards the reliance placed by the Revenue on HSBC Securities & Capital Markets (I) Pvt. Ltd. case, it was seen that the appellant therein were rendering advisory services in the field of financial management. In addition to the advisory service, they also undertook some executory functions. It was in that context it was held that executory functions incidental to advisory services would also merit classification under ‘Management Consultancy Service”. However, these were not the facts obtaining in the present case. Thus, the facts of HSBC Securities & Capital Markets (I) Pvt. Ltd.case were different and distinguishable and hence, the ratio of the said decision cannot be applied. In sum, we were of the view that the prior to 1-7-2003, the services rendered by the appellant did not merit classification under “Management Consultancy Service”. Consequently the demand confirmed against the appellant by such classification was clearly unsustainable in law. Accordingly, they allowed the appeal by setting aside the impugned order.

Decision:-Appeal allowed.

Comment:- The gist of the case is that the services provided by assessee were administrative in nature and mainly involved liaisoning work and so these services cannot be said to be fall under the category of management consultancy service. For a service to be classifiable under the category of ‘Management Consultancy Service’, it is essential that some consultancy or advisory services are being performed. Mere provision of administrative or executory functions will not tantamount to rendering consultancy services.

Prepared by:-Prayushi Jain

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PJ/CASE LAW/2015-16/2695

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