whether hospitality services are taxable as Management or Business Consultant’s Service or Business Auxiliary Service?

PJ/Case Law /2016-17/3381

Case:- PIEM HOTELS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, NASIK

Citation:- 2016 (43) S.T.R. 211 (Tri. - Mumbai)

Brief facts:- The Appeal No. ST/432/11 filed by M/s. Piem Hotels Ltd. is directed against Order-in-Original No. 14/ST/2011, dated 31-3-2011 passed by the Commissioner of Central Excise & Service Tax, Nashik and Appeal No. ST/86184/15 filed by M/s. Indian Hotels Company Ltd. is directed against Order-in-Original No. 75 to 78/STC-I/SKS/14-15, dated 25-2-2015 passed by the Commissioner of Service Tax, Mumbai-I.
The relevant facts that arise for consideration are that M/s. Indian Hotels Company Ltd. (“IHCL”, for short) are providing hospitality services and are having their chain of hotels and resorts all over the world. IHCL provided taxable service under “Management or Business Consultant’s Service” to M/s. Piem Hotels Ltd. (“Piem”, for short) and paid service tax thereon. Being the recipient of such service, Piem have taken the credit of service tax paid such services under Rule 6(5) of Cenvat Credit Rules, wherender input services covered under specified clauses of Section 65(105) of Finance Act, 1994, were eligible for 100% credit, even if used partly for exempt goods/exempt output services. A show cause notice was issued to Piem for denying the credit on the ground that the services provided by IHCL are covered under Business Auxiliary Service under Section 65(105)(zzb) and not under Management Consultancy Service under Section 65(105)(r) as claimed by IHCL, which was confirmed by the Commissioner along with interest and imposed penalties, against which Piem have filed the present Appeal No. ST/432/2011.
Similarly, show-cause notices were issued to IHCL, proposing to change the classification of the service from “Management Consultancy Service” to “Business Auxiliary Service”, although Service Tax registration dated 8-9-2001 was issued under the head Management Consultancy Service. The action proposed in the said SCNs was upheld by the Commissioner against which IHCL has filed the present Appeal No. ST/86184/2015.

Appellant’s contention:- Learned Counsel for both the Appellants after taking them through various records submitted that the service rendered by IHCL are in nature of advice, consultancy and assistance which are directly in connection with management of the respective hotels and, hence, squarely covered under ‘Management or Business Consultant Service’ under Section 65(105)(r) of Finance Act, 1994, under which they have paid Service Tax also. It was further submitted that as per Section 65(65) 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 render any advice, consultancy or technical assistance, which shows that the definition of ‘Management Consultant’ is very wide to cover management of any organization in any manner, in support of which the learned Counsel placed reliance on various judgments like RPG Enterprise Ltd. - 2008 (11)S.T.R.488 (T); Shervani Indus Syndicate - 2009 (14)S.T.R.486 (T); Federal Express Corporation - 2014 (36)S.T.R.375 (T); Dabur India - 2015 (39)S.T.R.1021 (T) and CBEC Circular No. 1/1/2001-S.T., dated 27-6-2001. It was further submitted that the main part of the definition itself is very wide, which covers the activity carried out by IHCL and the inclusive part is expanding the meaning to cover even any advice, consultancy or technical assistance also and that the Dept. has ignored the main part of the definition and is trying to contend that IHCL are not providing any advice or consultancy by invoking the inclusive part of the definition. The Counsel further submitted that Management Consultancy Service was brought under net of Service Tax net w.e.f. 16-10-1998, while IHCL started paying Service Tax under Management Consultancy Service based on the audit objections raised in 2001, which shows that the Dept. itself made them to classify their service under Management Consultancy Service and said classification stands accepted, which gets substantiated from the letter dated 14-9-2001 of IHCL addressed to the Commissioner, while obtaining registration under Service Tax; Service Tax Registration Certificate issued to IHCL on 18-9-2001, under ‘Management Consultancy Service’; Show Cause Notice dated 9-12-2002 issued to IHCL for appropriation of service tax and interest and for imposition of penalty and Order-in-Original dated 12-10-2011 confirming the specified demand and imposing penalty. It is her submission that the clauses of the agreements convey the role of the IHCL, which includes powers and management control to aid the respective hotels in fulfilling their goal of efficient working of the hotels and the said intention can be gathered from the various clauses of the agreement. Further, it was submitted that the substance of the Agreement has to be taken into account to understand the true relation for which the Counsel has relied on the Hon’ble Supreme Court judgment in the case of the Bhopal Sugar Industries [(1977) 3 SCC 147] and emphasized that once the substance of agreement is considered, the purpose and object of the arrangement is very clear, i.e. it is an arrangement for providing management consultancy and advice by IHCL for the functioning of various hotels of Piem. Further, the Department has not substantiated as to how and why the services provided by IHCL would be covered under ‘Business Auxiliary Service’. The Counsel further submitted that operational or administrative assistance in any manner has been introduced under Business Support Service only w.e.f. 1-5-2011 and, hence, for the prior period the same cannot be invoked. Further, the registration certificate to IHCL under ‘Management Consultancy Service’ was issued on due verification and based thereupon, Service Tax was paid by IHCL, which was accepted by the Dept. Further ST-3 Returns showing the payment of tax under ‘Management Consultancy Service’ has not been challenged by the Department in the manner known to Service Tax law. Under the circumstances, belated change of classification does not affect the assessments which have already acquired finality and the change in classification, in any case, would have prospective effect for which the Counsel relied various judgments like Casino Hotel - 2010 (19)S.T.R.425 (T); CCE v. Cotspun Ltd. - 1999 (113)E.L.T.353 (S.C.); CCE v. Hi Flow Pump Co. - 2012 (282)E.L.T.286 (T); Avenue Regent - 2010 (17)S.T.R.284 (T); Taj View Hotel - 2014 (36)S.T.R.888 (T). It was further submitted that the assessment in the present case, right from 2001 has become final, as the Dept. has not challenged the assessment and change of classification and/or demand of service tax under ‘Business Auxiliary Service’ and adjusting the service tax already paid under Management Consultancy Service towards the demand under Business Auxiliary Services is not permissible, as the Revenue has not challenged the assessment till date by filing of appeal. It was her submission that in a similar case of Newlight Hotels & Resorts Ltd., the hotel was availing credit of service tax paid on similar services provided by IHCL and were issued with Show Cause Notice for denial of credit, which was confirmed by the Commissioner and in appeal against the said Order, the Tribunal, vide Final Order No. A/11848/2014, dated 28-10-2014, invoking the ratio of Hon’ble Madras High Court judgment in the case of Mohan Breweries and Hon’ble Supreme Court judgment in the case of Sarvesh Refractories has held that the Revenue cannot change the classification or assessments of services at the recipient’s end. So far as the credit taken during the period prior to 1-4-2008, the Counsel submitted that the said credit would be admissible after 1-4-2008, in the light of lifting of the cap of 20% on utilization of credit under Rule 6(3)(c) of CCR, 2004, as, under the said sub-rule there was restriction of utilization and there was no restriction from taking the credit in support of which the Counsel relied upon the Tribunal judgment in the case of Federal Express Corporation [2014 (36)S.T.R.375 (Tri.-Mum.)] and CBEC Circular No. 137/72/2008-CX.4, dated 21-11-2008. It was further submitted by the Counsel that since the classification of the service provided by IHCL cannot be changed retrospectively, the credit availed of by Piem cannot also be denied and, therefore, both the Orders are not sustainable.

Respondent’s contention:- Learned Departmental Representative on the other hand reiterated the findings of lower authorities in both the cases and claimed that Management or Business Consultancy Services covers services rendered by advice or consultancy or technical assistance, while the services provided under executioner or operational agreements are not covered therein; that the Appellants are operating the hotels and are running the hotel properties, which primarily do not belong to them, thus, the role of Appellants was not just advisory but more of operational even at the senior management functions; that the sole intention behind classifying the services under ‘Management or Business Consultancy Service’ is to enable their own arm to avail 100% credit of Cenvat in terms of Rule 6(5) of CCR, 2004.

Reasoning of judgment:- Hon’able judges have considered the rival submissions and perused the records and find that the nature of service provided by IHCL is of the kind of advice, consultancy and assistance which are directly in connection with management of the respective hotels. It is clear from the submissions and the records that IHCL is not managing or conducting the hotel business of Piem on their behalf, but are only providing the management consultancy and advice by posting only key senior personnel to assist Piem to conduct their hotel business with their own infrastructure and manpower. Further, it is noticed that IHCL is not providing any service on behalf of Piem to Piem’s customers, nor are IHCL promoting the hotel business of Piem. Therefore, the services provided by IHCL to Piem cannot be termed as Business Auxiliary Service and the services provided by IHCL is squarely covered under Management or Business Consultant’s Service, classifiable under Section 65(105)(r) of Finance Act, 1994, which view of ours gets support from the Tribunal judgments in RPG Enterprise Ltd. - 2008 (11)S.T.R.488 (T) and Shervani Indus Syndicate - 2009 (14)S.T.R.486 (T). In any case, they are of the view that the change of classification at the end of IHCL would be prospective and cannot have retrospective operation, as held by this Tribunal in various judgments cited supra. Since Piem Hotels have taken credit during the period April, 2005 to September, 2010 and the classification has been changed at IHCL’s end, through impugned Order-in-Original dated 25-2-2015, such change in classification would not affect the credit taken by Piem during the period prior thereto. Therefore, the jurisdictional authorities at Piem Hotels have committed an apparent error in denying the credit and it is a well settled position of law that jurisdictional officers at recipient’s end are not empowered to question or change the classification or valuation at supplier’s end based on various judgments of Hon’ble Apex Court. Since they are allowing the appeals mainly on the ground that the services provided by IHCL is correctly and appropriately classifiable under Management & Business Consultant’s Services and not under Business Auxiliary Service and the jurisdictional officers at recipient’s unit are not empowered to review or revise the classification at supplier/provider’s end, we are not discussing various other propositions made by both sides.
Both the Appeals are allowed in above terms.

Decision:-Appeals allowed

Comment:- The analogy of the case is that nature of service provided by IHCL is of the kind of advice, consultancy and assistance which are directly in connection with management of the respective hotels. It is clear from the submissions and the records that IHCL is not managing or conducting the hotel business of Piem on their behalf, but are only providing the management consultancy and advice by posting only key senior personnel to assist Piem to conduct their hotel business with their own infrastructure and manpower. Services provided to hotel were Management or Business Consultant’s Service, classifiable under Section 65(105)(r) of Finance Act, 1994, and it was not Business Auxiliary Service.
Prepared by:- Monika Tak

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PJ/Case Law /2016-17/3381

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