2018 (12) TMI 506 - HC - Service Tax

Management or Business Consultant Service - Non-payment of service tax - assistance in implementing Clean Development Mechanism (CDM) - sale and management of certified emission reduction certificates (CERs) - recovery of Service tax on reverse charge basis - Circular of the Board dated 27.06.2011. Held that - The definition under Section 65(65) of the Act, 2007 is in the widest possible term. The Agreement thereafter will have to be read and interpreted from what had been agreed between the parties which in our opinion is unambiguous. Obligations were created in terms of the Agreement which have been reproduced in earlier part of the order where the UK Company was also obligated to provide services in marketing the CERs to beget favourable terms for the petitioner- Company. Keeping in mind that such concepts and obligations which have been created in terms of the Kyoto Protocol and the Agreement arising out of climate change, there has been some debate on such issue and no final opinion was available during the period such demand had been made, therefore, the Court could be inclined to hold that there may not be any occasion to impose penalty under Sections 76, 77 and 78 of the Act, 2007/ The appeal is otherwise dismissed except to the extent in relation to the imposition of penalty as made by the Assessing Authority.

Issues:
1. Interpretation of the definition of "management or business consultant" under Section 65(65) of the Finance Act, 2007.
2. Determination of Service Tax liability on services provided by a foreign company for assistance in implementing Clean Development Mechanism (CDM) under the Kyoto Protocol.
3. Assessment of whether the services provided fall under the definition of 'Management or Business Consultant' for taxability.
4. Evaluation of the orders of different authorities regarding the imposition of Service Tax and penalty.

Analysis:
1. The dispute originated from a demand-cum-show cause notice for non-payment of Service Tax issued to a company for services related to a Captive Power Plant project. The Assessing authority claimed the tax was payable under Section 65(65) of the Act, 2007, defining "management or business consultant."
2. The company, involved in Iron and Steel manufacturing, entered into an agreement with a UK Company for assistance in CDM projects, including registration, certification, and marketing of certified emission reduction certificates (CERs) in the international market.
3. The Assessing authority imposed Service Tax on reverse charge basis for payments made to the foreign service provider. The Commissioner Appeal later set aside the order, considering CERs as goods sold by the company and the UK Company acting as an agent, thus not liable for tax.
4. The Customs Excise and Service Tax Appellate Tribunal (CESTAT) reversed the Appellate authority's decision, stating that the services provided by the UK Company fell under the definition of 'Management or Business Consultant' as per Section 65(65) of the Act, 2007, making Service Tax applicable.
5. The petitioner argued against the Tribunal's decision, emphasizing that consultancy services related to CDM project certification had already been taxed, while trading in CERs should not be considered a taxable service.
6. The High Court upheld the Tribunal's decision, stating that the broad definition of 'Management or Business Consultant' covered the services provided by the UK Company as per the agreement, including marketing and sale of CERs, making them taxable under the Act, 2007.
7. The Court acknowledged the evolving nature of climate change-related obligations under the Kyoto Protocol and the Agreement, indicating a lack of clarity at the time of the tax demand. Consequently, the Court considered refraining from imposing penalties under Sections 76, 77, and 78 of the Act, 2007.
8. The Court noted the differing interpretations within Revenue authorities regarding the tax obligations, highlighting the complexity and evolving nature of such tax assessments. The appeal was dismissed, except for the issue of penalty imposition by the Assessing Authority.

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