2017 (9) TMI 1385 - HC - Service Tax

Classification of services - Financial Advisory Services in respect of energy, banking, development, finance, transport and urban infrastructure, disinvestment and risk management - whether classified under the head Banking and other Financial Services or under the head Management Consultancy Service? - Held that - the Financial Advisory Services undertaken by the Respondent have been introduced for the first time in Banking and other Financial Services with effect from 16th August 2002 - From the definition of Banking and other Financial Services, it is clear that Financial Advisory Services were included as a part of the said services. Insofar as Management Consultancy Services are concerned these have at all times been under the Finance Act and chargeable to service tax. This would be the case even after the inclusion of Advisory and Auxiliary Financial Services under Banking and other Financial Services on 16th August 2002 - it is not open for the Appellant to take a contrary stand viz. that the Financial Advisory Services were falling under Management Consultancy Services prior to 16th August 2002. The Appellate Tribunal have also observed that the Board Circular dated 7th October 1998 categorically clarified that information and advisory services, if any, rendered by credit rating agency would not attract service tax. The Appellate Tribunal has arrived at correct finding that the advisory services provided by the Respondent does not fall under category of Management Consultancy Services and is correctly classified under the Banking and other Financial Services - Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Challenge to the order passed by the Customs, Excise, and Service Tax Appellate Tribunal.
2. Classification of Financial Advisory Services for service tax purposes.

Analysis:

Issue 1:
The Appellant challenged the order passed by the Customs, Excise, and Service Tax Appellate Tribunal, which had set aside the demand of service tax imposed by the Adjudicating Authority. The Appellant contended that Financial Advisory Services provided by the Respondent fell under "Management Consultancy Services" and were liable to service tax prior to 16th August 2002. The Appellate Tribunal had allowed the Appellant's appeal, leading to the current challenge.

Issue 2:
The key contention revolved around the classification of Financial Advisory Services for service tax purposes. The Appellant argued that these services should be categorized as "Management Consultancy Services" based on the definition under Section 65(37) of the Finance Act. However, the High Court noted that Financial Advisory Services were introduced under "Banking and other Financial Services" from 16th August 2002. The definition of Banking and other Financial Services explicitly included Advisory and Auxiliary Financial Services, encompassing the Financial Advisory Services provided by the Respondent. The Court emphasized that Management Consultancy Services had always been chargeable to service tax and that the department had not objected to classifying Financial Advisory Services under Banking and other Financial Services. Additionally, a Board Circular clarified that advisory services by credit rating agencies would not attract service tax. Consequently, the Court upheld the Appellate Tribunal's decision, ruling that the advisory services did not fall under Management Consultancy Services and were correctly classified under Banking and other Financial Services, making them non-taxable before 16th August 2002.

In conclusion, the High Court dismissed the appeal, stating that the Financial Advisory Services were appropriately classified under Banking and other Financial Services for service tax purposes.