2007 (1) TMI 495 - AT - Service Tax

Refund of service tax paid - tax paid under the head Management Consultancy Service - non-banking financing company - Joint Venture agreement - HELD THAT - We find substance in the view taken by the lower appellate authority that the work done by the respondents was in the nature of in-house services rendered by them as partner of the JV company. We have enumerated the services rendered by the respondents. None of that has been shown to be a service rendered directly or indirectly in connection with the management of FISAF. Again, none of these services has been shown to involve advice, consultancy, or technical assistance relating to conceptualization, devising, development, modification, rectification or upgradation of any working system of the JV company. There is substance in the submission of ld. consultant that some of the services in question are covered by the definition of Business Auxiliary Services , which came to be introduced for levy of service tax w.e.f. 1-7-2003. The services in question were rendered in Oct 1999. The definition of Management Consultancy has continued to be same even after introduction of Business Auxiliary Services for levy of service tax. It would, therefore, mean that a service appropriately classifiable as Business Auxiliary Service cannot fall within the ambit of Management Consultancy . On this point, the respondents can legitimately claim support from the Tribunal s decision in Glaxo Smithkline Pharmaceuticals 2005 (7) TMI 25 - CESTAT, MUMBAI . The appellant has not succeeded in rebutting any of the points made in the impugned order. In the result, the appeal gets dismissed.

Summary

Issues:
Interpretation of the definition of "Management Consultancy" under Section 65(21) of the Finance Act, 1994 in relation to services provided by a non-banking financing company in a Joint Venture agreement.

Analysis:
The case involved a non-banking financing company that entered into a Joint Venture (JV) agreement with a Dutch company to establish a company where the Dutch company held 51% shares and the non-banking financing company held the remainder. The non-banking financing company was obligated to provide various services to the JV company, including credit processing, loan documentation, back office services, information technology services, after-sales services, and collection services. The issue arose when the tax department proposed to classify these services as "Management Consultancy" for service tax purposes. The non-banking financing company paid service tax under protest and later filed a refund claim, which was initially rejected but allowed by the Commissioner (Appeals), leading to the department's appeal.

The department argued that the services provided by the non-banking financing company fell under the definition of "Management Consultancy" as per Section 65(21) of the Finance Act, 1994, emphasizing that these services were related to the management of the JV company. They also cited a communication from the Ministry to the JV company confirming the applicability of service tax on these services. On the other hand, the non-banking financing company contended that the services rendered were internal in nature and did not qualify as "Management Consultancy." They referenced a previous Tribunal decision to support their argument that certain services cannot be classified under "Management Consultancy" if they fall under other service categories like "Business Auxiliary Services."

Upon careful consideration, the Tribunal found merit in the argument that the services provided were akin to in-house services as a partner in the JV company and did not meet the criteria of "Management Consultancy" as defined in the Finance Act. The Tribunal highlighted that none of the services directly related to the management of the JV company or involved advice on organizational systems. Additionally, they noted that some services could be classified under "Business Auxiliary Services," introduced post the services' rendition, indicating that such services cannot simultaneously fall under "Management Consultancy." Ultimately, since the department failed to counter these points, the appeal was dismissed, upholding the lower appellate authority's decision in favor of the non-banking financing company.