2014 (8) TMI 194 - AT - Service Tax

Management or business consultancy services - Whether the legal due diligence services provided by Shri Keshwani from China, would amount to providing services falling under the category of management or business consultancy services - Held that - The terms of the contract referred to by the adjudicating authority in the impugned order reveal that the legal due diligence is required to be got done by the appellant. For the said purposes Shri Keshwani, legal consultant located in China was appointed. Bills raised by Shri Keshwani very clearly reveals that the same is towards international legal due diligence. As against the above, Revenue has not placed on record any evidence to suggest that the said legal due diligence service provided by Shri Keshwani was not for legal due diligence but for general due diligence. As such at this prima facie stage, we proceed on the ground that the services provided by Shri Keshwani were for legal due diligence - legal services cannot be taxed under the category of management consultant services - Stay granted.

Summary

Issues:
Confirmation of service tax liability on legal due diligence services provided by an advocate residing abroad.

Analysis:
The case involved the confirmation of service tax liability on legal due diligence services provided by an advocate residing out of India. The appellants, engaged in the manufacture of excisable goods, entered into an investment agreement with a foreign entity. The services of the advocate were engaged for legal due diligence, and the Revenue contended that the appellant was liable to pay service tax as the recipient of these services. A Show Cause Notice was raised proposing confirmation of the demand, interest, and penalty, which culminated in an impugned order passed by the Commissioner.

The main issue to be decided was whether the legal due diligence services provided by the foreign advocate would fall under the category of 'management or business consultancy services'. The appellants argued that the services were provided to the future investor and not to them directly, and that legal due diligence should be considered as legal services, not falling under management consultancy. The Revenue's stand was that the services were related to the study of sale and purchase contracts with Chinese parties, not litigation, hence falling under management consultancy. The Tribunal referred to previous decisions where legal services were not taxable under management consultancy services, granting unconditional stay to the appellants.

The Tribunal found that the terms of the contract required the appellant to conduct legal due diligence, for which the foreign advocate was appointed. The bills raised clearly indicated international legal due diligence. In the absence of evidence suggesting otherwise, the Tribunal presumed the services were for legal due diligence. Citing previous cases, the Tribunal held that legal services provided during the relevant period were not taxable under management consultancy services. Therefore, the Tribunal waived the condition of pre-deposit of confirmed dues and penalties, staying the recovery during the appeal process. The stay petition was allowed on these grounds.