Whether Financial Advisory Services would be classified under Management Consultant or under Banking and Other Financial Services ?

PJ/Case Law/2018-2019/3480

Case: COMMISSIONER OF SERVICE TAX, MUMBAI-V Versus CRISIL LTD.
Citation: 2018 (8) G.S.T.L. 16 (Bom.)

Issue:Whether Financial Advisory Services would be classified under Management Consultant or under Banking and Other Financial Services ?

Brief facts: The appellant by the present appeal is challenging order dated 18th May, 2016 passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench at Mumbai (for short “Appellate Tribunal”) [2017 (48) S.T.R. 169(Tribunal)].

The respondent undertakes “Financial Advisory Services” in respect of energy, banking, development, finance, transport and urban infrastructure, disinvestment and risk management. The appellant was paying service tax on the aforementioned services under the head of “Banking and other Financial Services” with effect from 16th August, 2002. A show cause notice dated 20th February, 2003 was issued for the period 1999-2000 to 2001-2002 demanding service tax of Rs. 1,50,42,302/- by classifying the Financial Advisory Services rendered by the respondent under the category of “Management Consultancy Service”. By an Order-in-Original dated 31st October, 2011, the Adjudicating Authority viz. Commissioner of Central Excise, Thane-I confirmed the demand of Rs. 1,50,42,302/- along with interest thereon and imposed penalties under the provisions of Finance Act, 1994. The respondent being aggrieved by the Order-in-Original dated 31st October, 2011 preferred an appeal before the Appellate Tribunal. The Appellate Tribunal allowed the appeal and set aside the order of the Adjudicating Authority dated 31st October, 2011. The department has challenged the impugned order in the present appeal.

Appellant’s contention:The appellant department has submitted that the Financial Advisory Services provided by the respondent falls under “Management Consultancy Services” and would be liable to service tax even prior to 16th August, 2002 when the Advisory and Financial Services were included in “Banking and other Financial Services”. He has contended that the Financial Advisory Services would fall within the definition of “Management Consultant” under Section 65(37) of the Finance Act, which reads thus :-

“Management Consultant” under Section 65(37) 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 advice, consultancy or technical assistance relating to conceptualising devising, development, modification, rectification or up-gradation of any working system of any organisation.

He contends that from a plain reading of the definition of “Management Consultant” it would be clear that the Financial Advisory Services were a part of the service carried out by a “Management Consultant”. He has contended that the Appellate Tribunal has erroneously arrived at a finding that the said services were not a part of Management Consultancy Services prior to 16th August, 2002 and therefore, not taxable prior to the said date.

Respondent’s Contention and Reasoning of Judgement:
We have carefully considered the arguments. We observe that the Financial Advisory Services undertaken by the respondent have been introduced for the first time in “Banking and other Financial Services” with effect from 16th August, 2002. The definition of Banking and other Financial Services reads thus :-

“Banking and other Financial Services” means the following services provided by a banking company or a financial institution including a non-banking financial company, namely -
(a)     financial leasing services including equipment leasing and hire-purchase by a body corporate;
(b)     credit card services;
(c)     merchant banking services;
(d)     securities and foreign exchange (forex) broking;
(e)     Asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, but does not include cash [management];
(f)      Advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; and
(g)     Provision and transfer of information and data processing.”

From the definition of Banking and other Financial Services, it is clear that Financial Advisory Services were included as a part of the said services. Insofar as “Management Consultancy Services” are concerned these have at all times been under the Finance Act and chargeable to service tax. This would be the case even after the inclusion of Advisory and Auxiliary Financial Services under “Banking and other Financial Services” on 16th August, 2002. The definition of “Management Consultant” has also remained unchanged. The department has also not raised any objection to classifying the Financial Advisory Services under “Banking and other Financial Services”.

We are, therefore, of the view that it is not open for the appellant to take a contrary stand viz. that the Financial Advisory Services were falling under “Management Consultancy Services” prior to 16th August, 2002. The Appellate Tribunal have also observed that the Board Circular dated 7th October, 1998 categorically clarified that information and advisory services, if any, rendered by credit rating agency would not attract service tax. We accordingly are of the view that the Appellate Tribunal has arrived at correct finding that the advisory services provided by the respondent does not fall under category of “Management Consultancy Services” and is correctly classified under the “Banking and other Financial Services”, and hence the same was not taxable prior to 16th August, 2002.
In the circumstances, we dismiss the present appeal. There shall be no order as to costs.

Decision:The application dismissed.
Comment:The analogy of the case is that advisory and Auxiliary Consultant financial services are included under “Banking and Other financial Services” with effect from 16 August 2002. But department has contended that prior to this date, these services of financial advisory services would be classified under “Management Consultant Services” but this contention was not accepted. As there was no change in definition of this service, thus it cannot be classified in this service. Hence, it is not liable for the payment of service tax prior to 16.08.2002.

Prepared By:Pushpa Choudhary

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