2013 (7) TMI 819 - AT - Service Tax

Demand of service tax Whether the assessee would come under the category of stock broking service two notices were served to the assessee - Held that - The order of the department was set aside - no attempt has been made by the Revenue to classify the service and to demand service tax thereon - the principles of natural justice have been clearly violated - primary requirement is to put the appellant to notice under what taxable service category he is liable to service tax - the activity is private placement of shares which have not been listed in any recognized stock exchange - The activity comes under the category of Merchant Banking activity putting the liability prior to 2001 does not hold ground - the decision in CCE, Chennai Vs. Sundaram Finance Ltd(2007 (1) TMI 495 - CESTAT CHENNAI)also supports the view - classification done by the department of private placement of shares under management consultancy service has no basis - appeal allowed in the favour of the assessee.

Summary

Issues:
1. Classification of service for service tax liability on private placement of unlisted shares.
2. Violation of principles of natural justice in classification of taxable service.
3. Determination of activity as "management consultancy service" or "merchant banking service."

Analysis:

Issue 1: Classification of service for service tax liability on private placement of unlisted shares
The appellant, a stock-broking service provider, collected fees for private placement of unlisted shares. The dispute arose regarding the service tax liability on these transactions as they were not listed on recognized stock exchanges. The appellant argued that since the shares were not listed, they were not liable to pay service tax. The department classified the activity as "management consultancy service," demanding service tax. The appellant contended that the activity fell under "merchant banking service" and not "management consultancy service." The Tribunal analyzed the nature of the activity and concluded that private placement of shares did not involve management consultancy services but rather activities governed by merchant banking regulations. The department's classification was deemed incorrect, and the appeal was allowed.

Issue 2: Violation of principles of natural justice in classification of taxable service
The Tribunal noted that the Revenue failed to classify the service before demanding service tax, violating principles of natural justice. The appellant was not properly notified under which taxable service category the demand was made. This lack of clarity in classification was considered a violation of natural justice. Despite this procedural flaw, the Tribunal proceeded to examine the nature of the activity to determine the correct classification for service tax liability.

Issue 3: Determination of activity as "management consultancy service" or "merchant banking service"
The appellant argued that the activity of private placement of shares did not constitute management consultancy but fell under merchant banking services. The Tribunal agreed with the appellant, emphasizing that the appellant's activities aligned with merchant banking regulations and did not involve management consultancy services. The Tribunal referenced previous case law to support the classification of the activity as merchant banking services. The department's classification of the activity as management consultancy service was deemed baseless and not in accordance with the law. Consequently, the impugned order was set aside, and the appeal was allowed with appropriate relief as per the law.

In conclusion, the Tribunal ruled in favor of the appellant, highlighting the incorrect classification by the department and the nature of the activity as falling under merchant banking services rather than management consultancy services. The appeal was allowed based on the merits of the case, addressing the issues of service tax liability on private placement of unlisted shares and the violation of natural justice in service classification.