2008 (4) TMI 168 - AT - Service Tax

Service Tax - Management Consulting Services - The appellant was providing services to group companies - MOA specified that appellant is acting as consultant - moreover before the ITO they have admitted that they have rendered consultancy servcies- The contention of the appellant that they run on No Profit, No Loss basis and they recover actual expenses from group companies is not acceptable and liable to pay service tax - Extended Period is invokable

Issues Involved:
1. Whether the services rendered by the appellants amount to services rendered by a management consultant.
2. Applicability of the principle of mutuality.
3. Whether the recovery of expenses constitutes a service.
4. Application of extended period limitation for service tax.
5. Whether the gross amount recovered should be considered as inclusive of service tax.
6. Validity of penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Services Rendered as Management Consultant
The primary issue is whether the services provided by the appellants qualify as management consultancy services under Section 65(37) of the Finance Act, 1994. The appellants argued that they do not qualify as management consultants because:
- They only deal with licensee companies within their group.
- They recover only their costs without profit.
- They conduct joint discussions with licensee companies, unlike typical management consultants.
- They are an in-house entity, not an external consultant.
- They allow the use of their logo by licensee companies.

However, the Tribunal found that the appellants provided services such as strategic planning, corporate finance, MIS, HRD, and forex management to their licensee companies, which fall under the definition of management consultancy. The Tribunal noted that the appellants' Memorandum of Association explicitly states their role as management consultants, and they have entered into legal agreements with licensee companies, indicating a client-consultant relationship.

2. Principle of Mutuality
The appellants argued that the principle of mutuality applies, meaning no person can render service to itself, and cited various case laws. The Tribunal rejected this argument, stating that:
- The appellants and licensee companies are separate legal entities.
- The relationship is not of principal and agent but of client and consultant.
- The principle of mutuality does not apply as the contributors and recipients of the funds are not the same.

3. Recovery of Expenses as Service
The appellants contended that recovering expenses does not constitute a service. The Tribunal dismissed this argument, stating that the nature of the service provided, not the profit motive, determines tax liability. The appellants' activities, as outlined in their agreements and balance sheets, clearly indicate the provision of management consultancy services.

4. Extended Period Limitation
The appellants claimed that the extended period limitation of five years should not apply as their activities were transparent, and they had a bona fide belief based on a solicitor's opinion that they were not liable for service tax. The Tribunal found this unconvincing, noting that:
- Bona fide belief is not blind belief.
- The appellants did not disclose their activities to the Department.
- The extended period is applicable due to suppression of information with intent to evade tax.

5. Gross Amount Inclusive of Service Tax
The appellants requested that the gross amount recovered be considered inclusive of service tax. The Tribunal rejected this plea, stating that the law requires service tax to be paid on the gross amount charged, and the explanation added to Section 67 of the Finance Act, 1994, cannot be applied retrospectively.

6. Validity of Penalties
The Tribunal upheld the penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994, as the appellants failed to prove reasonable cause for their non-compliance. The penalties were deemed rightly imposed due to the appellants' failure to register, file returns, and pay the due service tax.

Conclusion
The Tribunal upheld the order passed by the Commissioner (Appeals), confirming the demand of service tax along with interest and penalties. The appeal was rejected, and the appellants were found liable for service tax under the category of management consultancy services. The principle of mutuality was deemed inapplicable, and the extended period limitation was justified due to suppression of information.

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