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TMI Blog2014 (12) TMI 1235X X X X Extracts X X X X X X X X Extracts X X X X ..... s, it does not appear that IHCL was running the hotel as a service to LHPL. In fact IHCL was part owner of the asset, i.e., LHPL, the remaining part owner being ICICI I-Venture who had parted with a huge loan of ₹ 330 crores which was primarily utilized to repay the existing debt of LHPL. If IHCL was part owner of LHPL, it can hardly be said that IHCL was providing service to itself to the extent of its ownership of LHPL. The other owner, i.e., I-Venture was essentially a lender who was eased out of the ownership in 2006. Thus there is sufficient evidence to show that IHCL was running the hotel on its own and was not doing any service for another entity. Therefore, it is clear that the IHCL are running the hotel and are not providing consultancy as mere holding of joint discussions between two entities does not mean that one entity is providing service to the other. Also the agreement states unambiguously that, for mutual benefit, IHCL shall run, develop, conduct, operate manage …. carry out all activities of running the hotel. The activities of IHCL in operating the hotel cannot be called as a service rendered under the category of Management Consultancy service results i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise. As per the said agreement, M/s. LHL was entitled for share of the profit on the basis of gross operational profits. 3. After going through the agreement in detail and various clauses thereof, the department was of the view that the activity undertaken by the appellant falls under the category of Management Consultancy Service . Therefore, a show cause notice dated 23-4-2008 was issued for demanding Service Tax for the period 1-10-2002 to 31-3-2006 along with interest and penalties were also proposed under the Finance Act, 1994. The said show cause notice was adjudicated and impugned order was passed. Aggrieved from the said order, the appellant is before us. 4. The ld. counsel for the appellant appeared and submits that the issue is to be examined : (i) Whether the activity of running, operating and managing the entire hotel business of M/s. Taj Lands End Ltd. (TLEL for short), Bandra under a License Agreement , from the date of agreements up to completion of final purchase of the hotel, would be covered under Management Consultancy Service and service tax would be payable on the quantum of Gross Operation Profits earned/retained by the appellants or not. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it is a case of purchase of Regent Hotel from LHL through the processing of purchase of shares from the then shareholders of LHL by the appellants (IHCL) and Trust, i.e., ICICI Trusteeship Service. The terms of the agreement and the surrounding circumstances would clearly evidence that it was a case of purchase of hotel belonging to LHL from 9-9-2002 and till completion of formalities like disbursement to sundry creditors, etc., the hotel was operated, run and maintained by the appellant in their own name and agreed sum towards the purchase value aggregating to ₹ 452 crores was paid in instalments. (C) Shareholders of LHL were paid the consideration for purchase of shares as detailed below : (i) An amount of ₹ 45,53,88,762/- in favour of M/s. Lokhandwala Constructions Industries Pvt. Ltd. (ii) An amount of ₹ 28,56,11,040/- in favour of M/s. Malvika Resorts Pvt. Ltd. (iii) An amount of ₹ 99/- in favour of Mr. Siraj T. Lokhandwala. (iv) An amount of ₹ 99/- in favour of Mrs. Tasneem S. Lokhandwala. Pursuant to the Share Acquisition and Subscription Agreement, the appellant contributed the amounts attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) that running, operating and managing Taj Lands End by appellants is covered under the category of appellants owned business with assets taken on rental basis from Lokhandwala Hotels Ltd. As far as appellants managed hotels is concerned, appellants have been paying service tax, under the head Management Consultancy Service , while appellants owned business, whether with assets owned by appellants or taken on rental basis, they are running their own business, hence, there is no question of paying service tax; (v) that, thus appellants at Taj Lands End were conducting, managing and operating its own business and appellants paid rent in form of License Fees to Lokhandwala Hotels Ltd. towards renting of the assets/property by Lokhandwala Hotels Ltd.; (vi) that w.e.f. 1-4-2005, M/s. Taj Lands End Ltd. was amalgamated with M/s. Indian Hotels Company Ltd.; (vii) that at the most, the arrangement arrived at under the aforesaid License Agreement can be considered as Renting of Immovable Property Service by Lokhandwala Hotels Ltd. to appellants, which service was brought under Service tax net w.e.f. 1-6-2007 and for the period prior to 1-6-2007, the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded operational or administrative assistance in any manner to Taj Lands End Ltd., then such operational or administrative assistance has been made taxable under the head Business Support Service vide Section 74 of the Finance Act, 2011, and the said amendment is prospective w.e.f. 1-5-2011. Thus, such operational or administrative assistance was not taxable during the disputed period, i.e., 31-10-2002 to 31-3-2006 hence, the demand is not sustainable on this ground also. (xiii) that without prejudice to the submissions that if the demand is sustainable on merits, in any case, the demand would also be barred by limitation, in view of the following submissions : (a) that show cause notice dated 23-4-2008 proposed to demand service tax for the period 1-10-2002 to 31-3-2006, invoking extended period, without substantiation as to what information was suppressed, or what facts were wilfully misstated, etc., by appellants with intent to evade payment of service tax; (b) that the fact of acquisition of Regent Hotel , i.e., Lokhandwala Hotels Ltd. by appellants was published in various newspapers and hence, it was a universal truth known to everybody, hence, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38) E.L.T. 21 (S.C.) (ii) Orissa Bridge Construction Corpn. Ltd. - 2011 (264) E.L.T. 14 (S.C.) (h) The fact of takeover of Hotel of LHL by the appellants was published in various papers in Business Line, on one of the hotel industry website also the said information was disclosed/reflected in their financial statement through Director s Report and these all evidence that there was no suppression or withholding of any information by the appellants with any intent to evade payment of tax, hence, extended period is not invocable based on the following judgments : (i) Hindalco Industries - 2003 (161) E.L.T. 346 (T) (ii) Kirloskar Oil Engines - 2004 (178) E.L.T. 998 (T) With regard to the above judgments, Hon ble Bench pointed out that the aforesaid issue has been referred to Larger Bench in the case of Uday Sponge Power Ltd. [2011 (264) E.L.T. 241 (T)], in which case, it was respectfully submitted that extended period would not apply. (xiv) in absence of any deliberate and conscious withholding of any information whatsoever from the Department, appellants cannot be held to have suppressed any inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (24) S.T.R. 173 (P H) (H) Ld. AR relying upon few lines of Agreement in his support would not be correct, as, each of the said three Agreements have to be read in toto and not in isolation. With these submissions, he prayed that the impugned order is required to be set aside on both counts, merits as well as on time bar. Consequently, penalties are also not imposable on the appellant. 8. On the other hand, ld. AR opposed the contention of the ld. Counsel and submits that the appellant is admittedly in the business of running of hotels and they are having licence agreement with the other hotels whereas the same activities are taken over by the appellant specifically in the case of Piem Hotels Oriental Hotel Ltd. where they are paying service tax on the said activity. Therefore, the appellant are required to pay service tax on the said activity. 9. He further drew our attention to the certain clauses of the agreement which are reproduced herein as under : (i) IHCL shall pay to LHL consideration comprising of Licence Fee, semi-annually by way of splitting of Gross Operating Profit (GOP) ranging from 70% to 50%. (ii) The staff of the hotel, which were th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term management is understood to mean running the affairs of an organisation in organised and systematic manner, as opined by the IIM, Ahmedabad. Therefore, the Management Consultant will include the services where the service provider is managing the activity of a client. As per the agreement dated 9-9-2002, IHCL shall pay to LHL, consideration comprising of licence fee, semi-annually by way of splitting the GOP. Further, IHCL is holding shares to the extent of 18.9% but it comes to sharing of profit they are retaining 30% to 50% of the profit which indicates that the amount retained by them is in lieu of services provided by them. 11. It is further submitted that the contention of the appellant that they were conducting, managing and operating their own business and they have paid rent in the form of licence fee to LHL towards renting of assets by LHL is contrary to the terms and conditions spelt out in the said licence agreement. In common parlance, the term, licence fee or rent is referred to pre-determined and fixed periodical amounts payable to landlord and normally has no concern or nexus with the profit or loss incurred/to be incurred by the tenant or lessee. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging the business of LHL and for that they were receiving consideration as percentage of GOP. Therefore, it is a case of wilful misstatement and suppression. To support this contention, he relied on the decision of Bajaj Auto Ltd. - 2010 (260) E.L.T. 17 (S.C.). 15. Heard both sides. Considered the submissions. 16. In this case the issue before us is whether the appellants are liable to pay service tax under the category of Management Consultancy Service or not, and whether the demand is barred by limitation or not. 17. The Larger Bench of the Tribunal in Pagaria Auto Center vide Interim Order No. M/35/14/SMB/LB/C-IV, dated 12-9-2013 [2014 (33) S.T.R. 506 (Tri.-LB)] has observed as under :- 20. On a consideration of the apparent conflict of opinion in the decisions mentioned in the order of reference and the other decisions which were cited at bar, it is clear that no uniform principle emerges as would guide determination of whether a particular transaction involving an interface between an automobile dealer and banker financial institution would per se amount to BAS. The identification of the transaction and its appropriate classification as the taxable BAS or otherwis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out below : 1st instalment : Amount payable as License Fees shall be 80% of the GOP of the Hotel for the period from the Appointed Date to 31st of December, 2002. 2nd to 10th instalment : Amount payable as License Fees shall be 70% of the GOP of the Hotel of the Semi-Annual Period immediately preceding the Payment Date applicable for such instalment. 11th to 20th instalment : Amount payable as License Fees shall be 60% of the GOP of the Hotel of the Semi-Annual Period immediately preceding the Payment Date applicable for such instalment. 21st to 30th instalment : Amount payable as License Fees shall be 50% of the GOP of the Hotel of the Semi-Annual Period immediately receding the Payment Date applicable for such instalment. 31st instalment : Amount payable as License Fees on the date of expiry of the Term of this Agreement shall be 30% of the GOP of the Hotel for the period from the end of the Semi-Annual Period considered for calculating the 30th instalment till the end of the Term of this Agreement. Provided however that the License Fees payable for the 31st instalment shall be paid after adjusting any balance of Additional Amounts (as defined hereinbelow) paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement, if any tax is to be deducted at source on the payment of Consideration to LHL, IHCL shall do so and furnish appropriate tax deduction certificate(s) to LHL. 5. USE OF ASSETS 5.1 LHL confirms having handed over to IHCL, the Hotel together with the right to use all existing movables, fixed assets and facilities for the purpose of the Operation of the Hotel to which IHCL acknowledges. All items including Facilities, Furniture, Furnishings, fixtures, paintings, equipment and all other amenities and support services presently available to the Hotel have also been handed over to IHCL and an inventory of the same shall be prepared and signed by both the Parties within 30 days of the Appointed Date and the same shall be deemed to be a part of this Agreement (collectively referred to and called the LHL Assets ). IHCL may at its cost have the right to replace any of the LHL Assets with the prior approval of LHL Secured Lenders in the event the aggregate value of LHL Assets being replaced by IHCL exceeds 5% of the book value of LHL Assets in any Financial Year Provided that IHCL shall deposit all proceeds arising oh account of replacement of the LHL Assets into a separate no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tores Supplies from such hypothecation, charge or encumbrance. All the Stores Supplies after the Appointed Date shall at all times, belong to IHCL and be the property of IHCL. Upon expiry or sooner termination of this Agreement, LHL agrees and unconditionally undertakes to take over all Stores Supplies except those bearing the Taj logo at the values attributed in the books of account of IHCL. IHCL shall be entitled to raise loans/effect borrowings for financing the operations of the Hotel by offering all current assets as security. 6.2 All the book debts in respect of the Hotel pertaining to the period upto the Appointed Date shall be to the account of LHL. Amounts if any, received by IHCL, with respect to such period, subsequent to the Appointed Date, shall be credited by IHCL to the account of LHL. 7. EXISTING MORTGAGE 7.1 After the Appointed Date, except the mortgage already created or agreed to be created by LHL in flavour of the Secured Lenders, LHL shall not create any mortgage, charge, liens or encumbrances of any nature on the Hotel and any constructions thereto, save and except, with the prior written consent of IHCL which consent will not be unreasonably ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 10.3 hereunder, IHCL shall be entitled to raise loans/borrowings by offering its assets, either movable or immovable, created by IHCL in terms of this Agreement as security, IHCL shall have the right to take away all such assets on the expiry of the Term of this Agreement or on earlier termination of the Agreement provided that before removing such assets, IHCL shall offer to sell the same to LHL for purchase at a fair price to be mutually agreed upon between the Parties or at a value determined by professional valuers which will be final and binding on both the Parties, failing which within 90 days, IHCL shall take away all such assets. However, in respect of the Hotel building and other assets the removal of which will cause irreparable damage to the Hotel building, LHL shall be bound to purchase the same at a fair price to be mutually agreed upon between the Parties, failing which a value determined by professional valuers would be the purchase price payable by LHL. 10.4 IHCL shall be entitled under this Agreement to use and occupy at all times exclusively the Hotel and all other structures/buildings constructed pursuant to expansion. 11.1 LHL and IHCL shall from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be utilised by the Secured Lenders to appropriate the outstanding loan amounts due and payable. It is hereby clarified that in relation to LHL s assets being restored or replaced under the insurance policy obtained in relation to LHL Assets, the owner of such replaced or restored assets would be LHL. In the event IHCL s assets are restored or replaced under the insurance policy obtained in relation to IHCL s assets, the owner of such replaced/restored assets would be IHCL. 14.1 During the Term of this Agreement, the Hotel shall be known and designated by such name as from time to time may be selected by IHCL. IHCL may permit the use of any of its Intellectual Property Rights, service marks, trademarks or any other similar property at the Hotel. LHL acknowledges that all trade names and trademarks provided by IHCL to the Hotel, including without limitation, the names Taj with all its variations, visual, phonetic or grammatical ( Intellectual Property Rights ) shall constitute the exclusive property of IHCL. Accordingly, LHL agrees that no right or remedy of LHL for any default of IHCL to handover the hotel to LHL, upon the expiration of this Agreement shall confer, nor sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided in this Agreement. (e) It shall pay and discharge all taxes imposed or payable in law for providing the services during the Term of this Agreement. (f) .... (g) it shall pay and discharge all the existing fees levied or demanded or payable to the Municipal Authorities or the State Government Authorities or any other authorities concerned as the case may be in respect of the operations of the Hotel if they pertain to the period after the Appointed Date. IHCL further declares and confirms that it shall take all such steps as may be necessary and appropriate to contest such levies, taxes, cess, etc., in any Court of law/Tribunal including filing of appeals, writ petitions, suits and take recourse to such other remedies as it may deem fit and necessary. (h) It will promptly pay the consideration in the manner provided in Section 4. . (m) it shall pay sales tax, excise, customs, octroi and other duties, dues, levies and other statutory liabilities relating to the Hotel and its operations imposed during the Term and discharge the same provided they pertain to the period after the Appointed Date. (n) It shall pay provident fund cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments stated hereinabove, the interest of the LHL was secured and on the other hand, a prudent business entity would not continue incurring losses which LHL was doing in the past; therefore, it was a move to sell the hotel and not to continue the hotel being run in losses. Therefore, the contention of the ld. AR is not acceptable. Moreover, in this case the appellant were paying the licence fee as agreed in the agreement on half early basis to settle the amount of liability payable to LHL being .the seller of the hotel. 22. We further find that during course of arguments the ld. Counsel for the appellant produced two licence agreements (a) Agreement between Piem Hotels Ltd. and the appellant dated 30-12-2004 and (b) Oriental Hotel Ltd. and the appellant dated 28-1-2003. 23. In those cases, it is the contention of the ld. counsel for the appellant that they are not required to pay service tax as they are themselves managing the hotel. But they are paying service tax on persuasion of the department. The fact of those cases are totally different from the facts of the case in hand. In fact, the case in hand the agreement has been executed, in continuation to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lationship between Party of the Second Part and any officer or workmen employed in the Factory at Maizapur. 6. That the loan application for sanction of facility for liquidation of cane price is at an advanced stage with a Bank/Financial Institution. Joint efforts will be made for expeditious sanction and liquidation of cane price of last season (Rs. 700 lacs) as quickly as possible. 7. That both the Parties have agreed that joint effort may be made to ensure the allotment of 40 lac quintals of cane to factory during the ensuing season from the reserved/assigned area of the Factory for which they have submitted the reservation proposal to the Cane Commissioner (U.P.). 8. That the management committee, as constituted above, will take appropriate steps to complete the repair and required modification work in the factory for efficient operation of the plant, within time to ensure the start of factory latest by November 15, 2001 keeping in view the maturity of cane and will also ensure the timely availability of funds for procuring pre-start stores. 9. That the ownership of movable and immovable assets of the Factory shall remain vested in the Party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices the Party of the First Part has agreed to compensate the Party of the Second Part minimum charges of ₹ 42.5 lacs per annum every year subject to the ceiling of 20% of the net profit of the sugar division whichever is higher. 18. This agreement will be for the term of five years from the date of execution of this agreement, terminable nevertheless at the option of the either Party by giving to the other three months notice in writing. But the Parties shall be entitled to serve notice only during the month commencing from the 1st April to 31st day of July. In that case, after analysing the terms of agreement, and this Tribunal referring to the definition of Management Consultant observed that a consultant is advisory service and not the actual performance of the management function. In this case also, the appellant are performing the activity of Management of hotel and they are not doing any advisory service to LHL. It was further observed that in the said case, that an ocean separates a manager from a management consultant, a performer from an advisor or a coach. That ocean exists in the present case also. Thereafter, it was held that the appellant are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TS 16.1 IHCL agrees, undertakes and declares that : (a) It shall during the Term of this Agreement pay and discharge all Operating Expenses. (b) It shall use, occupy, run, operate, conduct, manage and maintain at its cost the Hotel in accordance with acceptable quality standards and make available to the Hotel professional expertise and Hotel related technology as may be required in the opinion of IHCL for a Hotel of this standard and reputation. (c) It shall not commit or do any act or deed whereby the approvals are in any way suspended or adversely affected or liable to be revoked. (d) It shall pay and discharge all the current liabilities and/or expenses incurred after the Appointed Date save and except as otherwise provided in this Agreement. (e) It shall pay and discharge all taxes imposed or payable in law for providing the services during the Term of this Agreement. (f) It shall insure and keep insured the Hotel including the assets belonging to LHL in the manner herein provided at its own cost and expense. (g) It shall pay and discharge all the existing fees levied or demanded or payable to the Municipal Authorities or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of implementing the terms of this Agreement will be duly obtained from time to time by it. IHCL shall take the assistance of LHL, if so required, for obtaining licenses or permissions in respect of the Hotel. (q) It shall ensure that after the expiry of this Agreement, or the sooner termination thereof, the Hotel together with the assets shall be handed over to all-in in a good and serviceable condition, save and except normal, wear and tear, subject to LHL settling all dues of IHCL. IHCL further declares and confirms that it shall allow LHL to inspect the Hotel through any of its employees, for the purposes of ensuring that the provisions of this Agreement are being duly complied with by IHCL, after giving an intimation to IHCL/General Manager of the Hotel and such intimation shall not cause any disturbance to and/or disruption of the Operations of the Hotel. 28.1 From a perusal of the activities undertaken by the appellant it can be easily seen that the contention of the appellant that they were conducting/managing their own hotel is clearly disproved. If the appellant were managing their own hotel, there was no need to enter into an agreement with LHL, who is the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant was asked to furnish a copy of the agreement entered into with other parties where they were discharging service tax liability under the category of Management Consultancy Services . One such agreement entered into with M/s. Piem Hotels Ltd. was furnished by the appellant. The said agreement provided for rendering of consultancy and advisory services by IHCL to the said Piem Hotels Ltd. Article VII of the said agreement is reproduced below : ARTICLE-VII CONSULTANCY ADVISORY SERVICES TO BE RENDERED BY THE CONSULTANTS ADVISORS SECTION - I The Consultants and Advisors hereby agree to offer services and advice and guidance in directing and supervising the control and performance of all services and do or cause to be done all things reasonably necessary or proper for the efficient and proper operation of the Hotel. Without limiting the generality of the foregoing, the Consultants and Advisors shall, subject to the approval of the Board of Directors of the company in overall matters of policy, be vested with authority in respect of the following acts, deeds, matters and things :- (a) recruitment, training and assignment of duties of all personnel, provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the operation of the Hotel; (o) The making of such reasonable repairs, alterations and decorations to the Hotel as the Consultants and Advisors may deem reasonably necessary for the proper maintenance and operation thereof, provided that any expenditure of a capital nature not provided in the approved budgets for any year shall not be incurred without the prior written approval of the company. (p) The planning, preparation of and contracting for advertising and promotional programme for the Hotel; (q) Advising the company in matters of public relations; (r) Generally to perform all acts reasonably necessary in connection with the operation of the Hotel in an efficient and proper manner. SECTION 2 If the company and the Consultants and Advisors agree, the Consultants and Advisors shall use their good offices to arrange such sales and reservation agreements with such reputable international Hotel chains on other international bodies. Fees and other charges payable pursuant to such Agreement shall be paid by the company and shall form part of deductible expenses. ARTICLE VIII CONSULTATION FEES 1. As fees for the services cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , were also employees of LHL. This provision in the agreement also makes it abundantly clear that IHCL was not undertaking activities on their own account but were rendering the services to LHL by operating/managing the hotel. The agreement also provided for IHCL to report to LHL all the activities carried out by them and to hold discussions to formulate strategies. If IHCL was functioning on their own account, there was no need for submission of reports to LHL or discussion with LHL to devise strategies. Therefore, the terms and conditions of the agreement clearly point out that IHCL was rendering service to LHL and the service consisted of advising, developing and operating strategies for running of the hotel. This activity would clearly fall within the scope of management consultancy services as defined in law. 28.7 It has been argued that M/s. IHCL, the appellant herein, is not receiving any consultancy fees but the consideration is paid for the services rendered by allowing retention of the net sales amount, i.e., sale income minus expenditure and, therefore, since the consideration is paid by way of net sale amount, the transaction is not one of consultancy or advice. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument made in this regard by the appellant is clearly not sustainable in law. 28.8 Let us now see the statutory definitions provided in respect of Management Consultancy Services . During 16-10-1998 to 30-4-2006, the statutory definition read as follows : Management Consultant means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organisation in any manner and includes any person who renders any advice, consultancy or technical assistance, in relating to conceptualizing, devising, development, modification, rectification or upgradation of any working system of any organisation. 28.9 The definition underwent a change on 1-5-2006 and during 1-5-2006 to 1-6-2007, the revised definition read as follows : Management Consultant means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organisation in any manner and includes any person who renders any advice, consultancy or technical assistance, in relation to financial management, human resources management, marketing management, production management, logistics manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . M/s. Fraser Ross, AIR 1960 SC 971, the Apex Court observed that when the expression means is used, generally the definition is exhaustive. The Hon ble High Court of Gujarat in the case of Parth Poly Wooven Pvt. Ltd. [2012 (25) S.T.R. 4 (Guj.)] considered the scope of the expression means and includes and held that - In other words, the expression includes followed by means in any definition is generally understood to be expanding the definition of the term to make it exhaustive, but in no manner can the expression includes be utilized to limit the scope of definition provided in the main body of the definition. It can thus be seen that the definition of management consultancy service is really very wide and includes in its scope all gamut of activities rendered in connection with such service. 28.12 The scope of management consultancy services was examined by the C.B.E. C. in consultation with the Indian Institute of Management, Ahmedabad and the opinion obtained was communicated vide Board s Circular No. 1/1/2001-S.T., dated 27-6-2001, which reads as follows : 7. In this regard, the Board had consulted the Indian Institute of Management, Ahmeda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of the expression technical assistance was considered by this Tribunal in Nokia (India) Pvt. Ltd. v. Commissioner of Customs [2006 (1) S.T.R. 233] and the Tribunal held as follows : 18. The learned Counsel for the appellant took aid from the maxim nocitur a sociis for contending that meaning of the expression technical assistance occurring in the definition clause of consulting engineer should be confined to mere advisory or consultative assistance where purely cerebral function was involved. This would, in our opinion, be totally an unrealistic approach in the field of consultative engineering. Advice and consultation of a saint sitting under a banyan tree may mainly involve thought processes and discourses with no physical activity on the part of the saint towards assisting the recipient in the implementation of advice and, therefore, be purely a cerebral function, but that would be altogether different from the advice and consultancy of a qualified professional consultant engineer who is well versed with a discipline of engineering and has to render professional advice and consultancy to his client in respect of material objects that may require active technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operation of the Soaltee Hotel Pvt. Ltd. in Kathmandu, Nepal and received income in convertible foreign exchange. The income tax department was of the view that the services rendered by the appellant was in the nature of managerial services and the consideration received was in respect of managerial services and, therefore, not eligible for exclusion for the purpose of income tax since the concerned section provided for exclusion of income received towards rendering of technical services and not managerial services. The Hon ble Apex Court negatived this contention and held that modern system of management requires considerable technical skill and know-how and, therefore, the expression technical should receive a broad interpretation to include professional/managerial services as well. The Court observed that as per the New Webster s Dictionary of English language, the word technical means what is characteristic of a particular art, science, profession, or trade and the word technology means the branch of knowledge that deals with the industrial arts and sciences; utilisation of such knowledge; the knowledge and means used to produce the material necessities of a society. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Turnkey contracts. If we apply the above concept of service, in my considered view, the executory functions undertaken by the appellant in the present case would certainly fall within the scope of management consultancy service. 28.17 The Hon ble Apex Court in the case of Balwant Singh v. Jagdish Singh [2010 (262) E.L.T. 50 (S.C.)] explained the principle of statutory interpretation as follows :- It must be kept in mind that whenever a law is enacted by the legislature, it is intended to be enforced in its proper perspective. It is an equally settled principle of law that the provisions of a statute, including every word, have to be given full effect, keeping the legislative intent in mind, in order to ensure that the projected object is achieved. In other words, no provisions can be treated to have been enacted purposelessly. Furthermore, it is also a well settled canon of interpretative jurisprudence that the Court should not give such an interpretation to provisions which would render the provision ineffective or odious. Thus the expression technical assistance used in the definition of management consultancy service, has to be given full effect to and if this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consultancy Service. Therefore, the said decision is distinguishable both on facts and in law. The opinion of the Indian Institute of Management was also not there before the Tribunal for consideration in the said case. In any case, it is a settled position in law that the principle of res judicata will not apply in matters of classification in a tax dispute. 28.19 In the appeal before us, a series of activities have been undertaken by the appellant by way of financial management, human resources management, marketing management, inventory management and so on. Therefore, the scope of the work involved in the present case is substantially wider than that in the Basti Sugar Mills Co. Ltd. s case. Therefore, the ratio of the said decision has no relevance, whatsoever, to the facts of the present case. 28.20 The next question for consideration is whether the extended period of time could be invoked to confirm the service tax demand. While the department has alleged suppression on the part of the appellant, inasmuch as the activities were not disclosed by the appellant to the department, either by way of declaration in the statutory returns or otherwise, the appellant s contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt of information. From this date five years period is available to the department to issue the demand notice. The same view was reiterated by the Hon ble Gujarat High Court in the case of Neminath Fabrics Pvt. Ltd. [2010 (256) E.L.T. 369 (Guj.)] by observing that if the appellant-assessee withheld the information from the department by not declaring the same in the statutory returns, then a presumption might arise against the assessee justifying invocation of extended period of time for raising the demand. Following the same, in the present case also, it has to be held that the appellant has suppressed the information with intent to evade tax and therefore, invocation of extended period of time for confirmation of demand is justified. 28.22 The last question is with regard to imposition of penalties. As regards the imposition of penalty in the present case, penalty has been imposed under the provisions of Sections 76, 77 and 78 of the Finance Act, 1994. Penalty under Section 76 is imposable when there is a default or delay in payment of service tax. No mens rea is required to be proved for imposition of penalty under Section 76. Penalty under Section 77 is imposable for fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /retained by the appellants or not. (b) Whether in the facts and circumstances of the case the demand is barred by limitation or not. (c) Whether in the facts and circumstances of the case penalties under Sections 76 77 of the Finance Act, 1994 are imposable on the appellant or not. (Pronounced in Court on 5-8-2014) Sd/- (P.R. Chandrasekharan) Member (Technical) Sd/- (Ashok Jindal) Member (Judicial) 32 . [Order per : P.S. Pruthi, Member (T)]. - I have carefully gone through the findings recorded by my ld. Brothers and their Difference of Opinion. 33. The facts of the case have been dealt with in some detail by both Member (Judicial) and Member (Technical). Therefore, I will not repeat all the facts except where it may be necessary to highlight some details and to support the reasoning given by me. 34. Heard both sides. 35. The ld. Counsel for the appellants explained that the owners of Regent Hotel, i.e., Lokhandwala Hotels Pvt. Ltd. were debt trapped and Indian Hotels Co. Ltd. (IHCL) proposed to acquire the hotel. The entire exercise of transfer of the erstwhile Regent Hotel owned by M/s. Lokhandwala Hotels Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emonstrate that the business belonged to IHCL and thus disagreed with Member (Technical s) view (para 28.1 of the Order) that IHCL was not managing its own hotel but was providing management consultancy service. To justify their stand that their activity is not management consultancy service, he showed that whereas the fees from management consultancy, when charged at 5% of revenue (which is the management fee charged by them in the case of their agreement with Piem Hotels as 5% of gross income) will amount to ₹ 15.51 crores only for four years, i.e., from 2002-2003 to 2005-2006, the profit actually returned by them as per their License Agreement amounts to ₹ 51.52 crores as indicated in the chart below. Year Total Revenue of Hotel Management fees @ 5% of Revenue Gross Operating Profit (GOP) License fees paid to TLEL Profit retained by IHCL A B C D E=C-D 2002-03 32,51,12,556 1,62,55,628 12,32,62,270 9, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Precot Mills Ltd. - 2006 (2) S.T.R. 495 (T), Indian Oil Corpn. Ltd. - 2007 (8) S.T.R. 527 (T), Chemplast Sanmar - 2010 (19) S.T.R. 424 (T). Further, that sharing of expenses/profit cannot be treated as service for which he relied on C.B.E. C. Circular No. 109/3/2009-S.T., dated 23-2-2009, CCE v. Pinnacle Ind. Ltd. - 2006 (1) S.T.R. 258 (T), Navinon Ltd. - 2004 (172) E.L.T. 400 (T) = 2006 (3) S.T.R. 397 (T). He stressed that the judgments of Co-ordinate Bench must be honoured and relied on Gammon India Ltd. - 2011 (269) E.L.T. 289 (S.C.). In the end he contended that even where they were paying service tax in managed hotels such as Piem Hotels, they were forced to pay service tax under management consultancy service and he placed on record correspondence with the department showing that IHCL were forced to pay service tax under Management Consultancy Service. 41. The ld. Counsel relied on the judgment in the case of Basti Sugar Mills (supra) which, according to him, squarely applies to the facts of the present case and which was affirmed by the Supreme Court. On the issue of time bar he stated that since Member (Technical) has held there is no mens rea and hence penalty is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L consented to run the hotel, through a complex arrangement of Agreements mentioned in para 4 above. The essence of the Agreements was that I-Venture (the institutional lenders) and IHCL acquired the entire shareholding of LHPL. Then the consortium of the institutional lenders, i.e., I-Venture infused funds to pay off the huge debt standing in the books of LHPL as well as to further finance LHPL through shareholding. A relatively smaller investment was made in LHPL by IHCL and the working capital loan was also provided by IHCL. Under the Shareholders agreement, IHCL was under an obligation to buy back the entire shares within four years from September, 2002. Accordingly, on 31-3-2006, IHCL had bought the entire shareholding of I-venture. In terms of the complex arrangements, IHCL had also entered into a License Agreement with LHPL (later the name of LHPL was changed to Taj Lands End Ltd.) to the effect that the hotel which stood in the name of LHPL was given to IHCL on a license basis to enable the latter to run the hotel on its own. It is this fact which is being stressed upon by the ld. Counsel and he emphasized that, although the owner of asset is LHPL, whereas the owner of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L shall be entitled to receive and appropriate the Net Sales amount . This clause does not necessarily imply that the service is being rendered by IHCL to another entity. This clause is only part of the arrangement to enable the hotel to get out of the woods in collaboration with ICICI Venture. It only indicates that IHCL will appropriate only net sales amount which is a restriction that acts as a buffer so that IHCL do not draw more funds out of the business for their own benefit. It is a clause which safeguards the interest of the hotel business, IHCL, as well as the lenders, i.e., ICICI Venture. Therefore, in my view, reliance on this clause by the ld. AR does not help the cause of Revenue. 47. In all businesses there are risks and rewards. From the arrangements it is seen that the entire risk and reward depended on how IHCL ran the business. This is evident from the fact that : The invoices were issued by IHCL and the revenue from the hotel belonged to IHCL. IHCL collected various taxes such as VAT, luxury tax, etc. and deposited the same under its own registration number. All expenses were incurred by IHCL. 48. The view of ld. Member (Technical) is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays, failing which IHCL can remove such assets and take it away. IHCL has right to replace/sell any asset of LHL at its own cost. However, prior approval of LHL required if value of assets being replaced exceeds 5% of book value of LHL. IHCL also has the right to add new asset at its cost and the ownership of such asset will belong to IHCL. IHCL do not have any specific right whereby they can sell/replace the assets of the owning company. IHCL only have the power to control and manage the property, assets and funds. MORTGAGE ON LHL ASSETS Clause 7 1. Except the mortgage already created in favour of the Secured Lenders, LHL shall not create any mortgage, charge, liens, etc., on the hotel and any constructions thereto except with the prior approval of IHCL. No specific clause on this. INITIAL RENOVATION Clause 9.1 1. IHCL shall carry out the initial renovation work at the Hotel at its own cost. No specific clause on this. LATER STAGE RENOVATION/ADDITION ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable if any, in Trust and retention account. However, if (i) The Computed license fees Estimated Cash requirements and the difference is not settled by LHL, then to that extent IHCL shall give unsecured advances to LHL @ 11.75% p.a. interest. (ii) Subsequent license fees instalments shall be paid after adjusting unsecured advances given. (iii) Last instalment should be paid after adjusting unsecured advances and interest outstanding if any. Article 7 1. Basic Fee - Retain 5% of Gross Income. 2. Reimbursement of (i) out of pocket expenses (ii) Fees payable to outside consultants, etc. (iii) pro-rated cost of group advertising sales promotion, etc. 3. All expenses/cost incurred for maintain the hotel shall be paid by the owning Co. out of the receipts of the hotel. INSURANCE Clause 12 1. For LHL assets - Cost of renewal of policies will be of IHCL but beneficiaries will be LHL and secured lenders. 2. For IHCL assets - Cost and beneficiary of policy will be IHCL. 3. LOSS OF PROFIT POLICY - IHCL sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is essential difference in the two. The underlined portions also highlight that, in the case of Agreement with Piem Hotels, the real control of operations rested with Piem Hotels. This is not so in the present case with LHL hotel which is seen to be operated in its entirety by IHCL. The ld. AR s reliance on clause 11.1 to justify that IHCL provided service to LHL does not establish this. The clause 11.1 only states that LHL and IHCL shall, from time to time, hold discussions to formulate strategies to be adopted for increasing the business of LHL and IHCL shall keep LHL informed generally of the activities carried on by IHCL at the hotel. Mere holding of joint discussions between two entities does not mean that one entity is providing service to the other. Even reporting of activities by IHCL to LHL does not mean that a service is necessarily being rendered; it only reflects mutual financial interest and involvement of both entities in the running of the hotel by IHCL. Therefore, the two agreements are critically different and the Agreement with LHL shows that IHCL is actually running the hotel not as a service to another entity but on its own account. 49. Had IHCL been do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the CESTAT judgment in the case of B.S.R. Co. v. Commissioner of Service Tax, Gurgaon - 2013 (30) S.T.R. 242 (Tri.-Del.) in which Tribunal held that only services in the nature of providing consultancy or advices for improving the Management of a business entity only will be covered by the definition and not executory type of responsibilities of management got done through another agency. Even the Board Circular (supra) indicates that it is advisory services which are includible under the taxable service rendered by a management consultant. Board s Circular states taking into account all the above points, the board has taken a view that merger, acquisition and other form of restricting or business organization have emerged as key element in the modern management and as the term management covers the various functions and the multifarious activities required for efficient and effective functioning of an organization, any advisory services rendered in merger and acquisition transaction are also includible under the taxable service rendered by management consultant . The Board Circular never intended to nor expressly states that running a business such as a hotel would amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hoy Road, Bandra, Mumbai. . The parties have agreed that for their mutual benefit and for the consideration mentioned in this Agreement, IHCL shall run, develop, conduct, operate manage, renovate, modernize and expand the Hotel and carry out all activities incidental and ancillary to the business of hoteliering or otherwise (the Operation of the Hotel ) as appropriate upon the terms and conditions recorded herein . . The above portion of the Agreement makes it abundantly clear as to what the true and only actual purpose of the Agreement is. The Agreement states unambiguously that, for mutual benefit, IHCL shall run, develop, conduct, operate manage . carry out all activities of running the hotel. The ld. Counsel has rightly placed reliance on the judgments cited in para 6.2 while contending that they cannot render service to themselves and that sharing of expenses/profit cannot be treated as a service. 54. For all the reasons stated above, in my view, the activities of IHCL in operating the hotel cannot be called as a service rendered under the category of Management Consultancy service. 55. On the issue of extended time period, I note that the ld. Member (T) has not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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