2005 (7) TMI 25 - AT - Service Tax

Staff costs for marketing teams are executory, not management consultancy; service tax demands, interest and penalties set aside

GLAXO SMITHKLINE PHARMACEUTICALS LTD. Versus C. CE, MUMBAI-IV

CESTAT, Mumbai (AT) allowed the appeal, holding that staff costs allocated to the appellant for marketing teams constituted executory, not advisory, ... Levy of Service Tax - Classification of costs incurred - nature of the Executory Services provided by the Marketing Team Staff - Imposition of penalties - HELD THAT:- The staff costs as per the CA certifications are the costs incurred of 8 marketing team which had been allocated to BWIL, based on budgeted turnover for each team. Further, cost of the staff members in Glaxo payroll, working involving exclusively for BWIL, had not been directly cross charged. The gratuity & leave encashment benefit pertaining to the field force staff working for BWIL had not been cross charged. However these amounts were not expected to be material. These charges therefore are executory costs and not advisory costs for marketing the products of BWIL. CBEC vide circular dated 27-7-2001 has clarified that the intention is to Tax the Advisory Services provided by the consultants, and not the Executory Services provided by a contractor. The staff costs as incurred & reimbursed for 8 teams in marketing exclusively for BWIL, as ably presented by the ld. DR, would be conducting Executory Functions & not Advisory Functions. The new entry is extension of the scope of coverage if Service Tax and not carving out of a new entry, from the erstwhile entry of 'Management Consultancy Service'. Therefore, it has to be held, that in the facts of this case, the levy of Service Tax on Staff Costs defined by BWIL, under the heading 'Management Consultancy Service' cannot be upheld. Levy on such costs could be as on business auxiliary service, which was not a Taxable Service prior to 2003 & appellant is not a service provider as Management Consultant. Once that is found, & the appellant cannot be classified as a service provider under 'Management Consultant' levy of Service Tax cannot visit prior to 2003 or after 2003 under and a 'Management Consultant'. When there is no levy of Service Tax on the appellant, for the Services provided, there was no requirement of registration & filing of returns &/or delay payment of any tax during the period under dispute. The penalties imposed are to be set aside along with the demand of tax as made and interest consequent thereon. Appeal to be allowed. Issues:1. Applicability of Service Tax on services provided by the appellant to another company.2. Classification of costs incurred by the appellant for the other company.3. Imposition of penalties for non-compliance with Service Tax regulations.Analysis:1. The issue of the applicability of Service Tax on services provided by the appellant to another company was examined. The appellant contended that they were engaged in day-to-day activities for the other company without receiving fees, thus not rendering them as 'Management consultant.' However, it was held that the taxable event arises when a service is rendered, irrespective of professional charges, as per the Kerala Colour Labs Association case. Therefore, the plea of exemption from Service Tax was rejected, emphasizing that the nature of the service provided determines the tax liability.2. The classification of costs incurred by the appellant for the other company was scrutinized. It was found that the expenses categorized as 'other expenses' did not fall under the definition of 'Management Consultancy Service.' The costs related to publicity, freight, traveling, power, fuel, rent, and miscellaneous expenses were not considered taxable under Service Tax regulations, especially when charged on actuals as per department clarifications.3. Regarding the imposition of penalties for non-compliance with Service Tax regulations, it was concluded that since the appellant could not be classified as a service provider under 'Management Consultant,' the levy of Service Tax was deemed inappropriate. Consequently, there was no requirement for registration, filing of returns, or delay payment of tax. The penalties imposed were set aside along with the demand for tax and interest, leading to the appeal being allowed with consequent relief.In conclusion, the orders imposing Service Tax on the appellant for services provided to another company, the classification of costs, and the penalties for non-compliance were set aside, granting relief to the appellant.