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PJ/Case Laws/2012-13/1133

Whether the activity undertaken by the applicant falls under the category of ‘Management Consultancy Service' or not?
Case: THE INDIAN HOTELS CO LTD V/S COMMISSIONER OF SERVICE TAX, MUMBAI-II
 
Citation: 2012-TIOL781-CESTAT-MUM
 
Issue:- whether the activity undertaken by the applicant falls under the category of ‘Management Consultancy Service' or not?
 
Brief Facts: - The applicants are seeking waiver of pre-deposit of service tax of Rs.4,85,98,345/- along with interest and various penalties under the Finance Act, 1994, confirmed against them by the impugned order under the category of ‘Management Consultancy Service'.
 
The applicants are running business of hotels in the name of M/s Indian Hotels Company Ltd. (IHCL). M/s Lokhandwala Hotels Pvt. Ltd. (LHL) was running a hotel in the name of ‘Regent Hotel' which is situated at Bandra. As the said hotel was incurring losses and there was a huge demand against them of about Rs.331 crores from various persons and of about Rs.95 crores from ICICI Trustship Services Ltd., the hotel business of ‘Regent Hotel' was acquired by the applicants. An agreement was entered into between the applicants, LHL and ICICI Trustship Services Ltd. as ICICI was ready to pay the loans of various other parties payable by LHL to the tune of Rs.331 Crores for settlement of repayment of loans and transaction of transfer of the ownership right to the applicants. Therefore, as per the agreement, the share of the ICICI Trustship Services Ltd. was 80.1% and the share of the applicant was 19.9% and new Company was formed and named as ‘Taj Lands End Ltd'. As per the said agreement, the applicants have taken over the activities of the hotels such as develop, conduct, operate, manage, renovate, modernize and carry out all activities of incidental and ancillary business to the business of hotelering or otherwise. As per the said agreement, M/s LHL was entitled for share of the profit on the basis of gross operational profits.
 
By going through the various clauses of the agreement and particularly sharing of the profit, the department was of the view that the activity undertaken by the applicant falls under the category of ‘Management Consultancy Service'. Therefore, a show-cause notice dated 23.04.2008 was issued for demanding service tax for the period 01.10.2002 to 31.03.2006. The show-cause notice was adjudicated and the same was converted into impugned demands.
 
Appellant’s Contention: - The appellants contended that they are engaged in the activity of running and managing the Hotel and they are not engaged in any Consultancy to LHL. Therefore, their activity does not cover under ‘Management Consultancy Service'. In support of his contention he placed reliance on the decision of this Tribunal in the case of Basti Sugar Mills Co. Ltd. vs. CCE Allahabad – 2007(7)STR 431(T) = (2007-TIOL-657-CESTAT-DEL) which was confirmed by the Hon'ble Apex Court vide 2012 (25) STR J154 (SC). Appeallant also relied on the decision in the case of Nirulas Corner House Pvt. Ltd. 2007(14)STR 131(Tri) = (2009-TIOL-130-CESTAT-DEL) and therefore, prayed that during the pendency of the appeal, stay be granted against the impugned demand.
 
He further submitted that the show-cause notice has been issued by invoking the extended period of limitation is in dispute. Therefore, being an issue of interpretation, extended period is not invokable.
 
Respondent’s Contention: - The respondents drew attention to the agreement particularly, on the clause of consideration received by the applicants. As per the said clause, the applicants shall share the profits of the Hotel run by them but they are not sharing the losses incurred by the Hotel and the same shall be borne by ICICI Trustship Services Ltd. As the applicants are not sharing the losses and they are managing operation of the Hotel, therefore, they are covered under the definition of ‘Management Consultancy Service'. As the applicants are managing by themselves, directly or indirectly, in connection with the Management of the Hotel, the activity undertaken by the applicants is covered under the category of ‘Management Consultancy Service' and the adjudicating authority has rightly confirmed the demands against the applicants.
 
With regard to the limitation, he submits that the definition of ‘Management Consultancy Service' is clearly spells out that the activity of managing itself is relate to both strategic and operational level functioning of the Hotel and falls under the category of ‘Management Consultancy Service'. As the applicants themselves a managing force of the Hotels, therefore, the extended period has rightly been invoked by the adjudicating authority.
 
 
Reasoning of Judgment: - The Hon’ble Tribunal held that on going through the definition of ‘Management Consultancy Service', it is clear that a person who is engaged in providing any service in connection with the management of any organization which means he should provide a service for managing the day to day affairs of the organization. If he himself is managing the affairs of the organization, prima facie, it does not fall under the ‘Management Consultancy Service'. The issue was dealt by this Tribunal in the case of Basti Sugar Mills Co. Ltd. (supra) wherein they held that “the appellant engaged in sugar manufacture took over management of another sugar mill. The agreement was treated as management consultancy and service tax demanded. The agreement was interred entrusting operation of factory and not for advice or consultancy. The advisory service of consultant is necessary for taxability. Appellant being in charge of operation of factory was performing management functions. The activity was not falling within the scope of taxable service. Further, they have also gone through the various clauses of the agreement which was confirmed by the Hon'ble Apex Court also and they find that the applicants have taken over the activities of managing/running the Hotel themselves. Therefore, prima facie, they are of the view that the applicants are not a ‘Management Consultant” in the light of above discussion and reliance of the decision of this Tribunal in the case of Basti Sugar Mills Co. Ltd. (supra). Therefore, the demand under the category of ‘Management Consultancy Service' is not sustainable.
Decision: - The appeal was allowed.
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