2012 (8) TMI 718 - AT - Service Tax

Demand of service tax under Management and Business Consultant Held that - Revenue has no proof that service have been provided by the Gamma Holding except the terms of the contract - no service tax to be paid for entering into a contract. Levy arises only when activities are performed - Market Research itself is needed for management of an organization cannot be reason for classifying the service as Management Consultancy considering the legal position that a service has to be classified under the heading which is more specific. Market Research may help in Management for that reason the activity of Market Research cannot be classified as Management function when both services are separately taxable - requirement for pre-deposit waived

Summary

Issues:
Classification of services received for taxation purposes under the Finance Act, 1994.

Analysis:
The appellants, engaged in manufacturing Automotive Laminated Fabrics, entered into an agreement with a foreign company for various services. The Revenue contended that the services fell under "Management and Business Consultant" as per section 65(105)(r) of the Finance Act, 1994, necessitating service tax under section 66A. The appellants argued that they received services only under the category of Market Research Agency as per section 65(105)(y) and hence were not liable to pay service tax.

The dispute centered around the classification of services provided by the foreign company. The Taxation of Services Rules, 2006, stipulates that the location of the recipient determines the taxability for services under section 65(105)(r), while the place of performance is crucial for services under section 65(105)(y). The appellants contended that since the services were performed entirely outside India, they should not be taxed under Market Research Agency services.

The Counsel for the appellants presented the report from the foreign company to support their claim, citing Board's letter No. B11/1/98-TRU to explain how the services aligned with the definition of Market Research Agency. They emphasized that the terms of the contract related to joint ventures were not executed, further bolstering their argument for non-taxability under Management Consultancy services.

In response, the Revenue argued that the services provided strategic insights crucial for product manufacturing and marketing decisions, falling under Management Consultant services. They contended that the unexecuted terms of the contract were immaterial, and all services, including those related to joint ventures, were within the Management Consultant scope.

After evaluating both sides' contentions, the Tribunal found merit in the appellants' argument. They noted that the services received primarily aligned with Market Research Agency definition and that the mere need for Market Research in management decisions does not warrant classification under Management Consultancy. Therefore, the demand for service tax was deemed prima facie not maintainable, and the requirement for pre-deposit of dues was waived during the appeal's pendency.