Whether assistance for selection of granite blocks and execution of export order is taxable as Management Consultancy Services?

PJ/CASE LAW/2015-16/2706

Case :-PUSHKAR STEELS PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MEERUT-I

Citation:-2015 (38) S.T.R. 173 (Tri. - Del.)

Brief facts :-The appellants are manufacturers of M.S. Ingots. During scrutiny of their balance sheet in the financial year 1999-2000, it was noticed that they had shown income of Rs. 34,92,277/- as commission. On query with the appellant about the details of this commission, they explained that out of the said amount, an amount of Rs. 21,29,250/- was received from their customers for “marking selection of granite blocks” and the remaining amount of Rs. 13,19,977/- was received by them from their customers for “services rendered in executing export orders”. According to the department, both these activities of the appellants are Management Consultancy Services taxable under Section 65(105)(r) read with Section 65(65) of the Finance Act, 1994. Accordingly, a show cause notice was issued to the appellant for demand of Service Tax amounting to Rs. 1,72,162/- along with interest and also for imposition of penalty on them under Sections 76, 77 and 78 of the Finance Act, 1994. The above show cause notice was adjudicated by the Asstt. Commissioner vide order-in-original dated 1-1-2007 by which the above mentioned Service Tax demand was confirmed along with interest and besides this, penalties were imposed on the appellant under Sections 76, 77 and 78 of the Finance Act, 1994. On appeal being filed to the Commissioner (Appeals) against this order, the Commissioner (Appeals) vide order-in-appeal dated 31-10-2008 upheld the Asstt. Commissioner’s order. Against this order of the Commissioner (Appeals), this appeal has been filed.

Appellant’s contention :-Shri Alok Arora, Advocate, ld. Counsel for the appellant, pleaded that in terms of Section 65(105)(r), service provided to a client by a Management Consultant in connection with the management of any organization in any manner is taxable, that the term “Management Consultant” is defined under Section 65(65) 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 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” that in the present case, the department has not specified as to which organisation is the recipient of the alleged Management Consultancy/Advice provided by the appellant, that mere assisting individual clients for selecting the granite blocks, or helping them in executing the export orders does not constitute “Management Consultancy Service”, and that in view of the above, the impugned order is not sustainable.

Respondent’s contention :-Shri Pramod Kumar, ld. Joint CDR defended the impugned order by reiterating the findings of the Commissioner (Appeals).

Reasoning of judgement :-The appellant are a manufacturer of M.S. Ingots and besides this, they have some other non-manufacturing activities which are helping in marking of granite blocks and rendering assistance in execution of the export orders and from these services, they earned income of Rs. 34,49,277/- during 1999-2000. According to the department, this activity of the appellant is “Management Consultant Service” as defined under Section 65(105)(r) read with Section 65(65) of the Finance Act, 1994.
Under Section 65(105)(r), service provided to a client by a management consultant in connection with the management of any organization, in any manner is taxable. The term “Management Consultant” is defined in Section 65(65) which is reproduced 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”.
In this case, the organization to whom Management Consultancy service is alleged to have been provided is not specified. Moreover, the service provided has to be in relation to the Management of an organization including advice, Consultancy or technical assistance for rectification or improvement of system of the organization. Mere helping a client in executing the export orders or in selecting granite blocks is not at all covered by the Management Consultancy Service, as there is no element of any consultancy with objective of management, rectification or improvement of the working system of an organization. The activity of the appellant therefore does not fall under Section 65(105)(r) read with Section 65(65). As such, the impugned order is not sustainable. The same is set aside. The appeal is allowed.

Decision :-Appeal allowed

Comment :- The gist of the case is that 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. There isno element of any consultancy with objective of management in the present case and further, the organization to whom Management Consultancy service is alleged to have been provided is also not specified. Therefore, it was concluded that mere marking of granite blocks and assistance in execution order is not taxable as Management Consultancy Services.

Prepared by :- Monika Tak

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PJ/CASE LAW/2015-16/2706

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