2017 (4) TMI 336 - AT - Service Tax

Classification of service - legal consultancy service or not - demand under the category of support services of business or commerce - Held that - it cannot be in doubt that respondent appears before tax authorities in statutory proceedings. Such appearance also involves preparation and certifying of documents that are required to be filed in accordance with compliance necessities - Submission of returns or appearance for resolution of disputes are not activities that are directly concerned with furtherance of business activities of an organization. On the contrary, these are activities that are thrust upon an organization for its very survival in the realities of the legal environment in which the organization functions. These are unavoidable and are not easily performed by the human resources available within the organization. Professional outside assistance has, necessarily, to be solicited and, considering the inevitability of such soliciting, loses the character of having to be outsourced for economic viability. Unless an activity is optional for the continued existence of the organization and permits the flexibility of self-performance vis-a-vis outsourcing, it does not appear to invite coverage as support service of business or commerce and the appeal of Revenue has not ventured to do so - appeal rejected - decided against Revenue.

Summary

Issues:
Appeal against demand of tax on 'support services of business or commerce' under section 65 (105) (k) of Finance Act, 1994.

Analysis:
The appeal pertains to a demand of tax on services provided by the respondent, alleged to be taxable under section 65 (105) (k) of the Finance Act, 1994. The respondent primarily offers auditing, consultancy, VAT and IT return checking, and other compliance-related services. The first appellate authority held that the respondent's activities were akin to legal consultancy services and not taxable as 'support services of business or commerce' until May 2011. The appellant contended that the services rendered were a mix of 'business support service' and 'accounting service', relying on a Tribunal decision and highlighting the activities listed in section 65(104c) of the Finance Act, 1994.

The appellant argued that the respondent's activities, particularly related to accounting, should be taxable as 'support services of business or commerce'. However, the Tribunal noted that the respondent's services were more aligned with legal consultancy services and not those typically outsourced by organizations. The Tribunal considered the nature of services provided, including representation before tax authorities and statutory bodies, and the absence of evidence to show the respondent as maintaining clients' books. The definition of taxable service in section 65 (104c) of the Finance Act, 1994 was also analyzed, emphasizing activities related to internal processes of an entity being taxable when outsourced.

The Tribunal further distinguished between activities directly furthering business operations and those necessary for compliance and survival in a legal environment. It noted that certain activities, like submission of returns and dispute resolution, were essential for organizational survival and not easily performed in-house. Professional assistance for such activities was deemed necessary and not outsourced for economic viability. The Tribunal rejected the appeal of Revenue, upholding the first appellate authority's finding that the respondent's services were akin to legal consultancy and not taxable as 'support services of business or commerce'. The cross-objection was also disposed of accordingly.