2025 (1) TMI 1445 - AT - Service Tax

Leviability of tax on actual performance of management activities - Management Consultancy Services - services rendered by the appellants to clients located outside India qualify as Export of Services - exemption from service tax - service tax on out-of-pocket expenses (OPE) - extended period of limitation. Leviability of tax on actual performance of management activities - HELD THAT - The Tribunal in the case of appellant s themselves 2014 (8) TMI 227 - CESTAT NEW DELHI finds that Though the definition at Section 65(65) includes any service in connection with management of any organization the scope of the definition gets restricted to services in relation to consultancy as is evident from the name given to the service and commercial understanding of the expression Management or Business Consultancy. - CESTAT has been consistently holding that actual performance of the activities do not fall under Management Consultancy Service. Therefore the issue stands decided in favour of the appellants. Export of services - HELD THAT - Tribunal Ahmedabad Bench in the case of B A Research India Ltd. 2009 (11) TMI 213 - CESTAT AHMEDABAD held that The performance of testing and analysing has no value unless and until it is delivered to its client and the service is to be complete when such report is delivered to its client. Thus delivery of report to its client is an essential part of the service report was delivered outside India and same was used outside India. This is not the disputed fact. We hold that the respondent satisfied the conditions of Rule 3(2) and accordingly the respondents are eligible for the exemption under Notification No. 11/2007-S.T. dated 1-3-2007. - thus the Export of Services claimed by the appellants is in order and the impugned order cannot be sustained on this count. Levy of service tax on the Out-of-Pocket Expenses - HELD THAT - The dispute has been laid to rest by the decision in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. 2012 (12) TMI 150 - DELHI HIGH COURT . The learned Commissioner did not have the benefit of the said judgment while passing the impugned order. This Bench in the case of Smt. Ritu Arora 2023 (11) TMI 1130 - CESTAT CHANDIGARH has followed the above decision. In view of the same this issue also stands settled in favour of the appellants. Appeal allowed.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the services provided by the appellants fall under the category of "Management Consultancy Services" and are taxable as such.
Whether the services rendered by the appellants to clients located outside India qualify as "Export of Services" and are exempt from service tax.
Whether the appellants are liable to pay service tax on out-of-pocket expenses (OPE) incurred on behalf of clients.
Whether the extended period for demand is applicable, and if penalties and cum-duty benefits are appropriate.

ISSUE-WISE DETAILED ANALYSIS

1. Classification under Management Consultancy Services

Legal Framework and Precedents: The appellants argued that their services do not fall under "Management Consultancy Services" as defined under Section 65(65), which covers consultancy or advice for improving management, not executionary services. They relied on precedents such as CESTAT, New Delhi's decision in their favor and other similar cases.
Court's Interpretation and Reasoning: The Tribunal reiterated that representational work exempted under Notification No. 25/2006-S.T. should not be classified under Management Consultancy Services. The Tribunal emphasized that only advisory services are covered under this category, not executionary services.
Key Evidence and Findings: The Tribunal found that the appellants' services were executionary in nature, aligning with the precedent set in the case of Ernst & Young (P.) Ltd.
Application of Law to Facts: The Tribunal applied the legal definition and precedents to conclude that the appellants' services do not fall under Management Consultancy Services.
Conclusions: The Tribunal concluded that the appellants' services are not taxable under Management Consultancy Services.

2. Export of Services

Relevant Legal Framework: The Export of Services Rules, 2005, particularly Rule 3, were pivotal in determining whether the services rendered were considered exports.
Court's Interpretation and Reasoning: The Tribunal referred to the B A Research India Ltd. case, which held that the destination of services is determined by the place of consumption, not performance. The Tribunal found the appellants' services were delivered and used outside India.
Key Evidence and Findings: The Tribunal noted that reports were sent outside India, fulfilling the conditions for export under the Export of Services Rules, 2005.
Application of Law to Facts: The Tribunal applied the Export of Services Rules to establish that the appellants' services were indeed exports and thus not taxable.
Conclusions: The Tribunal held that the services provided by the appellants qualify as exports and are not subject to service tax.

3. Service Tax on Out-of-Pocket Expenses

Relevant Legal Framework and Precedents: The appellants cited the case of Intercontinental Consultants and Technocrats Pvt. Ltd., which clarified that reimbursement of expenses should not be included in the taxable value of services.
Court's Interpretation and Reasoning: The Tribunal agreed with the appellants, noting that the reimbursement of out-of-pocket expenses, as per the cited precedent, should not be subject to service tax.
Key Evidence and Findings: The Tribunal found that the appellants had been reimbursed on an actual basis and were not liable for service tax on these amounts.
Application of Law to Facts: The Tribunal applied the established legal principle that reimbursement of expenses is not taxable.
Conclusions: The Tribunal concluded that the appellants are not liable to pay service tax on out-of-pocket expenses.

4. Extended Period, Penalties, and Cum-Duty Benefits

Relevant Legal Framework and Precedents: The appellants argued against the invocation of the extended period, citing a lack of suppression of facts. They also claimed entitlement to cum-duty benefits.
Court's Interpretation and Reasoning: The Tribunal did not delve deeply into this issue, as the primary issues were resolved in favor of the appellants, rendering further analysis unnecessary.
Conclusions: The Tribunal did not impose penalties or invoke the extended period, given the favorable resolution of the primary issues.

SIGNIFICANT HOLDINGS

The Tribunal consistently held that executionary services do not fall under "Management Consultancy Services," aligning with previous decisions.
The Tribunal affirmed that services delivered and used outside India qualify as exports and are exempt from service tax.
The Tribunal upheld the principle that reimbursement of out-of-pocket expenses should not be included in the taxable value of services.
The appeals were allowed, and the impugned order was set aside, with the Tribunal pronouncing the operative part of the order in open court.

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