2016 (12) TMI 1395 - AT - Service Tax

Classification of services - classified under the category of Management or Business Consultant Services defined in Section 65 (105) (r) of the Finance Act, 1994 or under Section 65 (105) (y) of the Finance Act, 1994 as Market Research Agency - reverse charge mechanism - Held that - The nature of the activity undertaken by M/s Gamma for the appellant is to be inferred from the product of such activity available in the form of the report. Such report is titled Market Research. A perusal of the report clearly indicates that the consultant has undertaken research in different parts of Europe with reference to the technical textile business. They have considered the various types of products, their manufacturers, production processes and even the turnover. This activity undertaken is clearly in the nature of market research. Reverse charge mechanism - Held that - the consultant has carried out market research activity in Europe and for this reason no service tax will be liable to be paid on reverse charge basis. There can be no service tax liability for entering into an agreement, however, the levy arises from relevant activities performed and the classification of such activities are to be decided depending upon which entry specifically covers the activity. The nature of the activity squarely falls to be classified as market research agency - demand of service tax set aside - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
Classification of services for service tax liability under Management or Business Consultant Services vs. Market Research Agency.

Analysis:
The appeal challenged an Order-in-Original by the Commissioner, Jaipur, imposing service tax liability on the appellant for services received from a foreign provider, M/s Gamma Holdings N.V. Netherlands. The Commissioner classified the services as Management or Business Consultant Services under Section 65 (105) (r) of the Finance Act, 1994, leading to service tax demand. The appellant contended that the services should be classified as Market Research Agency, exempting them from service tax under the Taxation of Services Rules, 2006. The agreement with M/s Gamma outlined services related to feasibility studies, joint ventures, and market opportunities. The appellant argued that only market research was conducted, not management-related activities. The Tribunal analyzed the agreement, invoices, and the nature of services provided, concluding that the activity was indeed market research, falling under Section 65 (105) (y).

The Tribunal emphasized that the classification of services for service tax liability must be based on the actual activities performed, not just the agreement terms. The report submitted by M/s Gamma titled "Market Research" indicated research conducted in Europe on technical textile business, aligning with market research services. The Tribunal noted that the entire agreed amount was paid for the market research report, with no evidence of other services provided. Citing the Taxation of Services Rules, the Tribunal clarified that market research services performed outside India are not liable for service tax on reverse charge basis, further supporting the appellant's classification under Market Research Agency.

The Tribunal rejected the Revenue's argument for service tax under Management or Business Consultant Services, citing case laws and emphasizing the need for clear documentary evidence to support tax liability. The Tribunal's decision to classify the services as market research agency led to setting aside the service tax demand. The judgment highlighted that service tax liability arises from activities performed, and the specific classification determines the taxability. Ultimately, the Tribunal allowed the appeal, overturning the impugned order and relieving the appellant of the service tax liability based on the classification as market research agency.