2016 (10) TMI 390 - AT - Service Tax

Classification of service - credit rating activity - financial advisory services in respect of energy, banking, development, finance, transport and urban infrastructure, disinvestment and risk management classified under the head of Banking and Other Financial Services or Management Consultancy Service? - tax paid by the appellant under the head of Banking and Other Financial Services, which came into effect from 16.08.2002, prior to which no tax was payable under this head - whether the authorities are correct in demanding duty prior to the period 16.08.2002 under the head Management Consultancy Service? - Held that - on the services in question the appellant has been paying Service Tax under the head of Banking and Other Financial Services w.e.f. 16.08.2002 and the Department had accepted the same. That being so, the Department cannot demand Service Tax on the very same activity under the category of Management Consultancy Service. The decision in the case of HSBC SECURITIES & CAPITAL MARKETS (I) PVT. LTD. Versus COMMR. OF ST., MUMBAI 2008 (6) TMI 159 - CESTAT MUMBAI relied upon where it was held that advisory and due diligence services on acquisition of shares in listed companies rendered to an existing organisation cannot be considered to be Management Consultancy Service. The Board Circular dated 07.10.1998 referred to wherein it was categorically clarified that information and advisory services, if any, rendered by credit rating services would not attract the Service Tax. As per the above discussion, the advisory service provided by the appellant does not fall under the category of Management Consultancy Service, however it is correctly classifiable under Banking and Other Financial Services. Therefore, the same was not taxable prior to 16.08.2002. The demand of Service Tax under the head of Management Consultancy Service is not legal and correct - appeal allowed - decided in favor of appellant.

Summary

Issues:
Classification of financial advisory services under Service Tax - Whether falling under Banking and Other Financial Services or Management Consultancy Service.

Analysis:
The appellant, a credit rating agency, provided financial advisory services along with credit rating activities. The dispute arose when the department demanded Service Tax on the financial advisory services for the period 1999-2000 to 2001-02, classifying them under Management Consultancy Service, contrary to the appellant's classification under Banking and Other Financial Services from 16.08.2002. The appellant argued that they believed the services were not taxable based on a Board Circular and that the demand was time-barred due to lack of specific allegations for invoking an extended period of limitation.

The appellant contended that their advisory services did not involve management consultancy and were correctly classified under Banking and Other Financial Services. They highlighted correspondence with the tax authorities, indicating a bona fide belief in non-taxability based on the Board Circular. The appellant had been paying Service Tax on credit rating activities but not on advisory services due to this belief, with regular filing of returns. They argued against the penalties proposed under the Finance Act, 1994, citing no suppression of facts and no invocation of the extended period of demand.

The Tribunal analyzed the definitions of Banking and Other Financial Services and Management Consultancy Service. It referred to precedents where advisory services were not considered management consultancy, emphasizing that the appellant's services fell under the former category. The Tribunal noted that the advisory services provided by the appellant were covered under the definition of Banking and Other Financial Services, specifically under clause (f) relating to advisory and auxiliary financial services. It concluded that the appellant's services did not fall under Management Consultancy Service but were correctly classifiable under Banking and Other Financial Services. The Tribunal set aside the impugned order confirming the demand of Service Tax under Management Consultancy Service, declaring it incorrect and not legally valid.

In summary, the Tribunal ruled in favor of the appellant, holding that their financial advisory services were correctly classified under Banking and Other Financial Services, not under Management Consultancy Service, and thus not taxable prior to 16.08.2002. The impugned order demanding Service Tax under the incorrect category was set aside, and the appeal was allowed.