2015 (9) TMI 316 - AT - Service Tax

Management Consultancy Service - appellants were advising the clients about various aspects relating to Management. The services are not executionery in nature and are clearly advisory in nature. - Held that - Regarding the appellants contention that the said services would be appropriately covered in the category of support services of business or commerce, or Business Consultancy Service, the same is not tenable because as per the definition of support service for business or commerce, the activities covered thereunder are essentially executionery in nature. - the impugned services rendered to Transocean/Tidewater categorically and unambiguously fall within the ambit of Management Consultancy Service. - Decided against the assessee. Export of services - amount received from ONGC to be treated as receipt in foreign exchange or not - Held that - Such payments do not reflect in the Govt. records as foreign exchange received in the country nor such payments reflect in the trade statistics of import and export. These are not mere procedural aspects and have legal and policy consequences. - It is pertinent to mention that once the RBI is taken in the loop, such transactions will not go unnoticed for the purpose of the relevant data bases of India s international trade and foreign exchange transactions and will also not remain under the radar of the laws relating thereto. Thus, the impugned payments made by ONGC to the appellants do not merit to be treated as payments received in foreign exchange. - Decided against the assessee. Extended period of limitation - Held that - For a service provider of this stature, something positive has to be shown to demonstrate that they had made reasonable efforts or had taken reasonable steps to ascertain legal position with regard to taxability of their impugned activities for the purpose of forming their purported reasonable belief. Mere presumption of non-taxability can never be equated to reasonable belief in that regard. Thus, the conclusion is inescapable that they deliberately did not take registration and pay the impugned service tax with a view to escaping the liability and when caught, pretended to be having reasonable belief about the non-taxability. Thus invocability of extended period and mandatory penalty is unexceptionable. Demand of service tax confirmed - penalty u/s 78 reduced - Decided against the assessee.

Issues Involved:
1. Classification of services rendered by the appellants.
2. Applicability of service tax on services rendered.
3. Invocation of extended period for demand.
4. Imposition of penalties under various sections of the Finance Act, 1994.
5. Computation of the impugned demand.

Detailed Analysis:

1. Classification of Services Rendered by the Appellants:
The primary issue was whether the services rendered by the appellants to M/s. Transocean and M/s. Tide Water fell under the category of "Management Consultancy Service." The Adjudicating Authority confirmed the demand holding that the services rendered were advisory in nature and related to management, thus falling under "Management Consultancy Service." The appellants contended that their services were executionery rather than advisory and should be classified under "Business Support Service" or "Business Consultancy Service," which came into effect later. However, the tribunal found that the services were advisory and directly connected with the management of the companies, thus falling within the ambit of "Management Consultancy Service" as defined in Section 65(65) of the Finance Act, 1994.

2. Applicability of Service Tax on Services Rendered:
The appellants argued that the services rendered were exempt from service tax as they were export services, with consideration received in convertible foreign currency. They cited the Supreme Court judgment in J.B. Boda and Co. Pvt. Ltd. v. CBDT, where such payments were treated as received in foreign exchange. However, the tribunal held that payments made by ONGC in Indian Rupees could not be treated as foreign exchange. The tribunal emphasized that for payments to be considered as received in foreign exchange, the Reserve Bank of India (RBI) should be involved, which was not the case here.

3. Invocation of Extended Period for Demand:
The appellants contended that there was no wilful misstatement or suppression of facts on their part, and any contraventions were due to a bona fide belief that they were not liable to pay service tax. However, the tribunal found that the appellants did not take registration, file returns, or pay service tax due, and did not provide any basis for their claimed bona fide belief. The tribunal concluded that the appellants deliberately did not comply with the service tax requirements, justifying the invocation of the extended period for demand.

4. Imposition of Penalties under Various Sections of the Finance Act, 1994:
The Adjudicating Authority imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The tribunal noted that the maximum penalty under Section 77 was Rs. 1,000/-. It also referred to several judgments, including those of the Punjab & Haryana High Court, which held that once a penalty under Section 78 is imposed, a penalty under Section 76 may not be justified. Consequently, the tribunal set aside the penalty under Section 76 and reduced the penalty under Section 77 to Rs. 1,000/-. The penalty under Section 78 was reduced to Rs. 63,80,119/-, with an option for the appellants to pay 25% of this penalty if paid within 30 days.

5. Computation of the Impugned Demand:
The appellants questioned the computation of the impugned demand. The tribunal found that the appellants did not produce any documentary evidence to question the computation made by Revenue before the adjudicating authority. Therefore, this plea could not be entertained at the appellate stage in the absence of any valid ground for not producing the evidence earlier.

Conclusion:
The tribunal partially allowed the appeal by modifying the impugned order to reduce the penalties under Sections 77 and 78 and set aside the penalty under Section 76. The appellants were given the option to pay 25% of the reduced penalty under Section 78 within 30 days, along with the service tax demand and interest. The tribunal upheld the classification of services under "Management Consultancy Service" and confirmed the applicability of service tax on the services rendered.

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