2010 (7) TMI 597 - AT - Service Tax

Waiver of pre-deposit - Stay of recovery - Management consultancy - The impugned demand on the appellants is raised under Rule 2(1)(d)(iv) of Services Tax Rules, 1994 as recipient of services from foreign agents - appellants have made a strong prima-facie case on the basis of the circulars issued by the CBEC against the demand and penalty - These services were brought into tax net only in the year 2009, much after the period of dispute - Accordingly decided in the favour of the assessee

Summary

Issues:
Waiver of pre-deposit and stay of recovery of service tax on legal services received by the appellant.

Analysis:
1. The appellant sought waiver of pre-deposit and stay of recovery of an amount related to services received for its initial public offering outside India. The services received were classified as 'management consultancy' under the Finance Act, 1994. The appellant had paid the service provider charges for services like due diligence, legal advice, drafting prospectus, and other related matters.

2. The appellant argued that the legal services received did not fall under management consultancy services as defined by the CBEC circular. The appellant relied on a clarification by the Service Tax Commissionerate stating that legal services by lawyers in their professional capacity were not taxable at that time. The appellant highlighted that legal services were not taxed until the Finance Act, 2009 was implemented.

3. On the other hand, the Jt. CDR contended that the legal services received were related to financial management, citing a circular that mentioned 'carrying out financial and legal due diligence' as taxable services. The impugned demand was raised under Services Tax Rules, 1994 as the recipient of services from foreign agents.

4. After considering the submissions and case records, the Tribunal found that the appellant had a strong prima facie case based on the circulars issued by the CBEC. The Tribunal noted that legal services were brought into the tax net only in 2009, which was after the period of dispute. Therefore, the Tribunal ordered the waiver of the confirmed dues and stayed the recovery pending the final decision in the appeal.

This judgment showcases the importance of interpreting tax laws and circulars to determine the taxability of specific services, especially in cases involving cross-border transactions and legal services.