2011 (5) TMI 611 - AT - Service Tax

Tribunal allows exemption claim for services not meeting 'Management Consultancy' criteria. Appeal allowed, relief possible.

The Tribunal set aside the order, ruling that the services provided did not qualify as 'Management Consultancy Service' and the appellant was entitled to ... Management Fees(Consulting fees) - Time limitation - Notification: 6/99-ST dated 9th April, 1999 - Held that;- Both the lower authorities have not disputed of this fact that the appellant had conducted market research for the suitability of the parent company's products in South Asian market - It can be seen from the above reproduced substituted definition of 'Management or business consultant', the services rendered in respect of marketing was specifically brought into definition. Both sides could not produce anything to indicate that this definition was with retrospective effect. Both the lower authorities have held and it is the submission the SDR that the proviso to the notification would apply in the appellant's case - The plain reading of the said proviso would indicate that any amount received for the taxable services has to be indicated or shown as repatriated from or sent outside India - It cannot be, by any stretch of imagination, held that the amounts which have been received by the appellant in convertible foreign exchange for the market research conducted for the parent company and indicated in the balance sheet as income are repatriated in form of dividend - Decided in favor of the assessee Issues Involved:1. Classification of services rendered by the appellant.2. Applicability of Notification No.6/99-ST.3. Allegation of suppression of facts and time-barred demand.Detailed Analysis:1. Classification of Services Rendered by the Appellant:The appellant, a subsidiary of M/s. Gillette USA, conducted a 'South Asian Market Research' study and charged fees from their parent company. The Revenue authorities classified this income under 'Management Consultancy Service' and demanded service tax along with interest and penalties. The appellant argued that their services did not fall under 'Management Consultancy Service' as defined under Section 65(37) of the Finance Act, 1994, during the relevant period. They contended that their activities were limited to market research to gauge the acceptability of Gillette's products in the Indian market, which did not involve any advice, consultancy, or technical assistance related to the management or working system of the organization. The Tribunal agreed with the appellant, noting that the market research did not include any assistance in relation to conceptualizing, devising, development, modification, or upgradation of any working system of the parent company. The Tribunal also observed that the definition of 'Management or Business Consultant' was amended by the Finance Act, 2007, to include marketing management, but this amended definition could only be applied prospectively.2. Applicability of Notification No.6/99-ST:The appellant claimed exemption under Notification No.6/99-ST, which exempts taxable services provided where payment is received in India in convertible foreign exchange, from the whole of the service tax. The Revenue authorities argued that the proviso to the notification, which states that the exemption does not apply if the payment is repatriated or sent outside India, applied in this case because the appellant paid dividends to the parent company. The Tribunal rejected this argument, stating that dividends paid to shareholders from disposable profits do not constitute repatriation of the amounts received for taxable services. The Tribunal concluded that the appellant was eligible for the exemption under Notification No.6/99-ST.3. Allegation of Suppression of Facts and Time-Barred Demand:The appellant argued that the demand was time-barred as there was no willful suppression of facts with intent to evade tax. They cited Supreme Court rulings that mere allegations of suppression are insufficient. The Tribunal did not delve into this issue in detail, as the appeal was decided on the merits of the classification and applicability of the exemption notification.Conclusion:The Tribunal set aside the impugned order, concluding that the services rendered by the appellant did not fall under 'Management Consultancy Service' and that the appellant was eligible for the exemption under Notification No.6/99-ST. Consequently, the appeal was allowed with consequential relief, if any. The Tribunal did not record findings on other submissions made by both sides, as the appeal was disposed of on the primary issues.