1. The appellants entered into an agreement with M/s Karnataka Electronics, Peenya Industrial Estate Bangalore to render the following services.
1) Finance, including wherever necessary, assisting in discussions and negotiations with the financial institutions.
2) Purchase of new materials and consumables at economical prices by identifying new suppliers.
5) Efficient way of production by upgrading technology and optimizing production techniques.
6) Human Resource Development areas and helping in hiring and training of new people.
2. Revenue issued show cause notice dated 24.7.2003 for demand of Service Tax under the category of Management Consultant with effect from 16.10.1998. The Service Tax at the rate of 5% for the period from October 1998 to May 2002 worked out to Rs. 4.62 lakhs for the above mentioned services provided by the appellant to M/s Karnataka Electronics, Peenya. Further, it was noticed that the appellant received an amount of Rs. 1,85,715/-during 1999-2000 and Rs. 3,10,210/- during 2000-2001 from M/s Maini Material Movement (Pvt) Ltd., Bangalore for providing Management Consultancy Service. On account of the above, a total amount of Rs. 24,797/- was demanded from the appellants. The Lower Authority confirmed the amount demanded in the show cause notice and further demanded interest under Section 75 of the Finance Act 1944.
Penalties were also imposed under Sections 69, 76, 77 and 78 of the Finance Act 1994. The appellants challenged the Order-in-Original dated 31.8.2004 before the Commissioner (Appeals). The Commissioner (Appeals) in the impugned Order No. 35/2005 ST dated 18.2.2005 upheld the Order-in-Original. The appellants strongly challenged the findings of the Lower Authority.
3. S/Shri K.S. Ravishankar and Shri K.S. Naveen Kumar learned advocates appeared for the appellants and Shri Ganesh Havanur learned SDR appeared for the Revenue.
1) The services rendered by the appellant to M/s Karnataka Electronics would not come within the ambit of Management Consultancy Services.
2) The appellants had already paid an amount of Rs. 1,15,019/- along with interest of Rs. 52,312/- under the category of scientific and technical consultancy. They had also obtained certificate of registration dated 13.6.2000. This has not been taken into account while demanding the service tax by the lower authority.
3) The services rendered by the appellants to M/s Karnataka Electronics would only fall within the ambit of banking and other financial services/ business auxiliary services. Hence, during the relevant period, these services would not come under the category of management consultancy services.
4) Of the six services enumerated in the agreement mentioned supra the first service reads as follows Finance, including wherever necessary, assisting in discussions, and negotiations with the financial institutions The learned advocate pointed out that the above service would definitely fit into the definition of banking and other financial services, as provided in the Finance Act 2004 Section 65(12) a, which reads as "the following services provided by a banking company or a financial institutions including a non-banking financial company or any other body corporate or commercial concern." It was emphasized by the learned advocate that to render banking and other financial services, it is sufficient if the service provider is a body corporate or commercial concern and it is not a must that it should be a bank.
Purchase of new materials and consumables and economical prices by identifying new suppliers.
Our attention was invited to Finance Act 2004 according to which "business auxiliary service" means inter alia any service relating to procurement of goods or services which are inputs for the clients. Hence it is easily seen that the above service comes within the ambit of business auxiliary services and not under management consultancy service as held by the lower authority.
6) The service in Sl No. 3 of the list in the agreement reads as follows: Our attention was invited to the definition of business auxiliary service in Section No. 65 (19)(ii) which reads as "promotion or marketing of service provided by the client". Hence, this also comes under business auxiliary service.
Our attention was invited to the definition of business auxiliary services Section No. 65 (19)(i) which reads as "promotion or marketing or sale of goods produced or provided by or belonging to the client. Therefore, this activity also falls under "business auxiliary services".
8) As regards Sl No. 5 in the agreement it was contended that the appellants had already paid tax under the category of scientific and technical consultancy. It was stated that on this issue, there is no doubt.
9) As regards Sl No. 6, in the contract it reads as "human resource development areas and helping in hiring and training of people". Our attention in this connection was invited to CESTAT Chennai Bench Final Order No. 1168/2005 dated 29.8.2005 wherein, the Tribunal has classified the above service in the category of man-power recruitment agency service. In the said decision, the department's contention that this service would fall within the ambit of management consultancy service was not accepted by the Commissioner (Appeals) and the decision was upheld. Following the ratio of the above decision, it was submitted that the above mentioned service would not fall within the category of management consultancy services.
10) It was further pointed out that the department has demanded service tax after going through the books of accounts of M/s Maini Material Movement (Pvt) Ltd. On an amount of Rs. 3,10,210/- said to have been received by the appellants from M/s Maini Material Movement (Pvt) Ltd, it was contended that the appellants had never received the above amount and the demand based on the ledger maintained by M/s Maini Material Movement is not admissible. As regards the amount of Rs. 1,85,715/-received during the period 1999-2000 is concerned from the same party, it was contended that the show cause notice has considered the amount to be received for rendering management consultancy services without any basis. In the original order also, there is no proper discussion on the above issue.
5. The learned SDR drew our attention to the definition of management consultancy services and contended that even though the services rendered by the appellant fall under the category of business auxiliary services, during the relevant period of the show cause notice, in view of the very broad definition of management consultancy services, the same could fall within its ambit. Hence, he requested the bench to confirm the demand.
6. We have considered the submissions made by the appellant and the learned SDR. The appellants have clearly demonstrated that the services rendered to M/s Karnataka Electric Power would only fall within the ambit of Business Auxiliary Services Scientific and Manpower Recruitment Agency Technical Consultancy Services. However, during the relevant period, except scientific and technical consultancy services, the other services rendered by the appellant would not be subjected to service tax. They had already paid duty on the scientific and technical consultancy services. Since business auxiliary services are taxable only with effect from 2004 and during the relevant period, business auxiliary services were not taxable, the demand of duty under the category of management consultancy services is not correct. We are not inclined to accept the proposition of the learned SDR that during the relevant period, these services would fall under the category of management consultancy services. As regards the amount of Rs. 1,85,715/- received from M/s Maini Material Movement, the matter is remanded to the lower authority for giving a clear finding as to how that amount represents the sum received for management consultancy service. As regards the amount of Rs. 3,00,210/- since the same has not been received by the appellant, no service tax on that amount can be levied during the period 2000-2001. Therefore, we set aside the impugned order and remand the matter to the Original Authority for the limited purpose of giving a finding on the amount received from M/s Meini Material Movement for the year 1999-2000 in accordance with law on the basis of the available evidence. The appeal is disposed of in the above manner.