2019 (5) TMI 266 - AT - Service Tax

Interpretation of Agreement - Classification of services - Representation services or Management Consultancy Services? - HELD THAT - The agreement itself is named as Representative Office Agreement. Preamble of the agreement also states that the intention of the agreement is that appellant is to have their persons in U.K. to represent them in its dealing with lawyers, bankers, consultants and revenue and other authorities. Thus, the intention of the Representative Office Agreement is to have a Representative Office for the appellants overseas. Clause 2 of the agreement mentions about the fees that has to be paid by appellant to M/s. Vdeanta. The fees is the consideration for performing its duties as a Representative Office. The fees is fixed as US 20 lakhs. Thus, from the agreement, it is very much clear that the intention of the parties is that appellants is to have Representative Office overseas. The department cannot pick and choose sentences from the agreement to interpret the meaning of the agreement to be a Consultancy Agreement. The issue would be more clear from the Consulancy Agreement entered into between the appellants and M/s. Vedanta. In clause (c) of the preamble of the Consultancy Agreement, it is stated that M/s. Vedanta is willing to provide Strategic Planning and Consultancy Services to appellant and each of its subsidiaries and for such Consultancy Agreement, the fees are fixed US 30 lakhs. The appellants have discharged service tax on the amount paid under this agreement. Thus, on analysis of both agreements, we have no hesitation to conclude that the agreement under question is nothing but a Representative Office Agreement and not a Consultancy Management Agreement. The demand of service tax on the amount of US 20 lakhs, which was paid by the appellant to M/s. Vedanta as Representative Office cannot be subject to levy of service tax under the category of Management Consultancy Services. The demand therefore cannot sustain on merits. Time Limitation - Revenue Neutrality - HELD THAT - The service tax, in the present case, is discharged under reverse charge mechanism. In case, the appellants pay the service tax, they would be eligible for credit of the same. Thus, the entire exercise is revenue neutral situation - The show-cause notice has been issued invoking the extended period alleging suppression of facts with intention to evade payment of service tax. When the situation is revenue neutral one, wherein, the appellants would be eligible for credit, it cannot be said that the appellants are guilty of suppression of facts with intention to evade payment of service tax - The invocation of extended period is without basis. The appeal succeeds on limitation also. Appeal allowed - decided n favor of appellant.

Issues Involved:
1. Classification of services under the Representative Office Agreement.
2. Liability to pay service tax on the amount paid under the Representative Office Agreement.
3. Applicability of the extended period of limitation and revenue neutrality.

Detailed Analysis:

1. Classification of Services under the Representative Office Agreement:

The appellants entered into two agreements with M/s. Vedanta Resources Plc.: a Consultancy Agreement and a Representative Office Agreement. The department alleged that the services provided under the Representative Office Agreement should be classified as Management Consultancy Services, subject to service tax. The appellants contended that the agreement was for representation purposes, not consultancy.

The Representative Office Agreement stated that M/s. Vedanta would represent the appellant in dealings with lawyers, bankers, consultants, and other authorities, and provide technical and commercial materials to promote business and raise funds overseas. The definition of 'Management Consultant' in the Finance Act, 1994, includes services related to financial management, human resources management, marketing management, and similar areas. However, the appellants argued that the services provided by M/s. Vedanta were executionary in nature and did not fall within the ambit of Management Consultancy Services.

2. Liability to Pay Service Tax:

The original authority held that the appellants were liable to pay service tax on US$ 20 lakhs paid under the Representative Office Agreement, categorizing it as Management Consultancy Services. The appellants had already paid service tax on US$ 30 lakhs under the Consultancy Agreement.

The Tribunal noted that the Representative Office Agreement was intended to establish a presence in the UK for representation purposes. The agreement was not for providing management advice but for representing the appellants. The Tribunal emphasized that the entire agreement should be read in context, and isolated clauses should not be interpreted to change the nature of the agreement. The Tribunal concluded that the services provided under the Representative Office Agreement did not qualify as Management Consultancy Services and thus were not subject to service tax.

3. Applicability of Extended Period of Limitation and Revenue Neutrality:

The appellants argued that the situation was revenue neutral since they would be eligible for credit of any service tax paid under the reverse charge mechanism. They also contended that the extended period of limitation could not be invoked as there was no suppression of facts with the intent to evade tax. The department had conducted several audits without raising any objections regarding the Representative Office Agreement.

The Tribunal agreed with the appellants, noting that the situation was indeed revenue neutral and that the department was aware of the facts due to previous audits. Therefore, the invocation of the extended period was unwarranted.

Conclusion:

The Tribunal held that the demand for service tax on the amount paid under the Representative Office Agreement could not be sustained on merits. The impugned order was set aside, and the appeal was allowed with consequential reliefs. The Tribunal also found that the extended period of limitation was not applicable due to the revenue-neutral nature of the transaction and the lack of suppression of facts.

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