Whether the appellant will be liable to service tax under Management & consultancy services if MD of the appellant company also worked as MD for another company?

PJ/Case Laws/2012-13/1455

Case:-M/S BOSCH CHASSIS SYSTEMS INDIA LTD V/S UNIOCOMMISSIONER OF CENTRAL EXCISE, PUNE-I

Citation:- 2013-TIOL-350-CESTAT-MUM

Brief Facts: - Thepresent appeal and stay application are filed against the Order-in-Appeal no. P-I/MMD/135/2012/1440 dated 5.7.2012 passed by the Commissioner of Central Excise (Appeals), Pune-I. The appellant M/s Bosch Chassis Systems India Ltd. had employed Shri Satish Sekhari as a Managing Director (MD). Shri Sekhari was also employed as MD of M/s Brembo Brakes India Pvt. Ltd. Shri Sekhari was required to devote 20% of his time to the work of M/s Brembo Brakes India Ltd. and for the remaining 80% of the time he was required to work for the appellants. M/s Brembo Brakes India Ltd. compensated Shri Sekhari for his work as MD and remuneration of Shri Sekhari was routed through the appellant and the payment received was credited to the account of Shri Sekhari without retaining any part thereof. The department was of the view that the appellant rendered Management & Consultancy Services to M/s Brembo Brakes India Ltd. by lending the services of Shri Sekhari and accordingly, a show-cause notice dated 15.11.2010 was issued demanding Service Tax of Rs.6,18,587/- under the category of Management and Consultancy Services under section 73 of the Finance Act, 1994 along with interest thereon under section 75 and proposing penalties under sections 76, 77 and 78 of the Act. The notice was adjudicated vide order dated 04.01.2012 by the jurisdictional Additional Commissioner, who confirmed the demands and also imposed penalties. The appellant preferred an appeal before the lower appellate authority, who dismissed the appeal and hence the appellant filed this appeal.

Appellant’s Contention: - The appellant contended that they have not rendered any Management Consultancy Services to M/s Brembo Brakes India Ltd. Their MD was working in the same capacity on a part time basis for M/s Brembo Brakes India Ltd. and he was required to be compensated. The compensation was routed through the appellant and on receipt of the same, they credited the entire amount to the account of the MD. This activity of settlement of management staff does not constitute Management Consultancy Services and, therefore, they are not liable to any Service Tax.

Respondent’s Contention: - The respondent reiterates the findings of the lower authorities and relies on the Circular no. 115/9/2009-ST dated 31.07.2009 issued by the CBE & C. In the said Circular in para 2(ii), it has been clarified that the Managing Director / Directors (Whole-time or Independent) being part of Board of Directors performs management function and they do not perform consultancy or advisory function. The definition of management consultant service makes it clear that what is envisaged from a consultant is advisory service and not the actual performance of the management function. The payments made by Companies, to Directors cannot be termed as payments for providing management consultancy service. Therefore, it is clarified that the amount paid to Directors (Whole-time or Independent) is not chargeable to service tax under the category ‘Management Consultancy service'. However, in case such directors provide any advice or consultancy to the company, for which they are being compensated separately, such service would become chargeable to service tax. In view of the above, he pleads for upholding the order.

Reasoning of Judgment: - The Hon’ble Tribunal held that from the records of the case, it is seen that the MD of the appellant company also performed the job of MD of M/s Brembo Brakes India Ltd. for which he was compensated. If at all, any advisory activity was undertaken by the said person, the demand for Service Tax can be made only on him and not on the appellant. Further, there is no evidence on record to show that the MD of the appellant firm rendered any consultancy/advisory services. He actually functioned as the MD of the other company also, therefore, the remuneration received by him through the appellant company does not come under the category of ‘Management Consultancy Services' in terms of the Board's Circular cited above.

Decision: - The appeal was allowed.

Comment:-The inference that can be drawn from this case is that merely because the remuneration was received by the MD through the appellant company, it cannot be held that the appellant company was liable to service tax under the category of ‘Management Consultancy Services’; where the MD also worked for another company.

Comments

PJ/Case Laws/2012-13/1455

Post a Comment

Query