2024 (6) TMI 306 - AT - Service Tax

Classification of services - Management or Business Consultant Services or not - Levy of tax under the category of Business and Management Consultancy Services on the services provided in relation to merger and acquisitions - Interest and penalty. Classification of services - Management or Business Consultant Services or not - services related to merger and acquisition, including financial and business analysis, target screening, financial analysis, due diligence, deal structuring, and post-acquisition integration - HELD THAT - While considering the nature of the services provided by the appellant commissioner has referred to the brochure of the appellant wherein the nature of services provided by the appellant have been detailed. Undisputedly one of the category of services provided by the appellant as per their own brochure is in relation to merger and acquisitions. Taking into considerations the nature of services as detailed in the brochure and the clarification issued by the Board vide letter F.No. 177/2/2001-CX4, dated 27.06.2001 under Section 37- B Order No.1/1/2001-ST dated 27.06.2001, Commissioenr ahs conclude that the service provided by the appellant are appropriately classifiable under the category of Business and Management Consultant Services. The same issue has been considered by the Chennai Bench in case of M/S. VSL INDIA PRIVATE LIMITED VERSUS COMMISSIONER OF SERVICE TAX, CHENNAI 2023 (3) TMI 802 - CESTAT CHENNAI and it was held that ' Having so concluded that the services in question do not constitute the services of a consulting engineer, the question remains as to whether these services constitute the services of a management or business consultant. We have considered the interpretation placed upon the definition of the term management or business consultant employed in section 65(65) by the Board. From that interpretation, and from the words of the statute, what emerges is that the task of management extends to all those tasks that do not constitute the core business of the enterprise, and which do not fall under other specialisations.' From the brochure of the appellant it is evident that appellant is providing a vast category of services some of which may be classifiable under the category Legal Consultancy Services and hence the value of the said services has to be excluded while determining the demand for the period prior to 01.09.2009. While determining the quantum of service tax payable certain amounts have been excluded as per the show cause notice - For the redetermination of the amounts which should be subjected to tax under the category of Business and Management Consultants the issue needs to be reconsidered by the original authority for the entire period of demand. Levy of tax under the category of Business and Management Consultancy Services on the services provided in relation to merger and acquisitions - HELD THAT - It is quite evident that the issue in regards to levy of tax under the category of Business and Management Consultancy Services on the services provided in relation to merger and acquisitions had been clarified by the Board as early as in 2001 vide the circular referred earlier. Once such a clarification, has been issued appellant cannot plead bonafide and nonpayment of tax on such activities cannot be said to be bonafide act but a clear case of contempt of the statutory provisions. Appellant have by suppressing the value of taxable service so rendered by not taking registration with the department have contravened various provisions of the Finance Act, 1994 as detailed earlier. Thus the extended period of limitation as per proviso to Section 73 (1) has been rightly invoked for making this demand. Interest and penalty - HELD THAT - Since the demand of tax is maintainable in the present case the demand of interest under Section 75 and the penalty imposed under Section 77 and Section 78 to are maintainable. Penalty under Section 78 needs to be re-determined after determining the quantum of tax payable in the remand proceedings. Appeal partly allowed and the matter remanded to the original authority for redetermination of the quantum of tax payable and penalty under Section 78, on the basis of re-determined quantum of tax.

Issues Involved:
1. Classification of Services Provided
2. Applicability of Service Tax
3. Invocation of Extended Period of Limitation
4. Imposition of Interest and Penalty

Issue 1: Classification of Services Provided
The appellant, a renowned law firm, contended that the services provided were purely legal and should be classified under "Legal Consultancy Services" as per Section 65(105)(zzzzm) of the Finance Act, 1994. The Commissioner, however, classified the services under "Management or Business Consultant Services" u/s 65(65) of the Finance Act, 1994, based on the nature of services detailed in the appellant's brochure, including due diligence, risk analysis, and management issues related to mergers and acquisitions.

Issue 2: Applicability of Service Tax
The Commissioner confirmed the demand of Service tax Rs. 7,41,83,988/-, Edu Cess Rs. 14,83,680/-, and Secondary & Higher Edu. Cess Rs. 7,41,839/-, totaling Rs. 7,64,09,507/- u/s 73(2) of the Finance Act, 1994, for the period 2007-08 to August 2009. The appellant argued that the services provided were not exigible to service tax before 01.09.2009. The Tribunal upheld the classification under "Management or Business Consultant Services" and remanded the matter for redetermination of the quantum of tax payable, excluding services that fall under "Legal Consultancy Services."

Issue 3: Invocation of Extended Period of Limitation
The Tribunal agreed with the Commissioner that the extended period of limitation u/s 73(1) of the Finance Act, 1994, was rightly invoked due to the appellant's suppression of vital information, non-registration, and non-filing of ST-3 returns. The appellant's plea of bona fide nonpayment was rejected, citing the 2001 Board clarification on the levy of tax on services related to mergers and acquisitions.

Issue 4: Imposition of Interest and Penalty
The Tribunal upheld the imposition of interest u/s 75 and the penalty u/s 77 and 78 of the Finance Act, 1994. The penalty u/s 78 was to be re-determined based on the re-determined quantum of tax payable in the remand proceedings. The Tribunal directed the adjudicating authority to decide the matter within three months of receipt of the order.

Conclusion:
The appeal was partly allowed, and the matter was remanded to the original authority for redetermination of the quantum of tax payable and the penalty u/s 78, based on the re-determined tax amount. The adjudicating authority was instructed to expedite the remand proceedings.

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