2014 (11) TMI 756 - AT - Service Tax

Activities not constituting Management Consultancy Services under tax law; service tax demand overturned.

The Tribunal held that the appellants' activities of assisting in selecting granite blocks and executing export orders did not constitute Management ... Management Consultancy Services - activity of helping in marking of granite blocks and rendering assistance in execution of the export orders - Penalty u/s 76, 77 & 78 - Held that:- Organization to whom Management Consultancy service is alleged to have been provided is not specified. Moreover, the service provided has to be in relation to the Management of an organization including advice, Consultancy or technical assistance for rectification or improvement of system of the organization. Mere helping a client in executing the export orders or in selecting granite blocks is not at all covered by the Management Consultancy Service, as there is no element of any consultancy with objective of management, rectification or improvement of the working system of an organization. The activity of the appellant therefore does not fall under Section 65(105)(r) read with Section 65(65). As such, the impugned order is not sustainable. The same is set aside - Decided in favour of assessee. Issues:- Whether the activities of the appellants constitute Management Consultancy Services taxable under Section 65(105)(r) read with Section 65(65) of the Finance Act, 1994.- Whether the order imposing service tax demand, interest, and penalties on the appellants is sustainable.Analysis:Issue 1: Activities constituting Management Consultancy ServicesThe appellants, engaged in manufacturing M.S. Ingots, also earned income from assisting customers in marking granite blocks and executing export orders. The department alleged these activities fell under Management Consultancy Services as per Section 65(105)(r) read with Section 65(65) of the Finance Act, 1994. However, the term 'Management Consultant' is defined as a person engaged in providing services related to the management of an organization, including advice, consultancy, or technical assistance for system improvement. The organization receiving the alleged consultancy was not specified, and the services provided did not involve management advice or system improvement. Thus, the activities of the appellants did not fall under the definition of Management Consultancy Services, and the order was challenged.Issue 2: Sustainability of the orderThe appellants argued that their activities did not meet the criteria for Management Consultancy Services as defined in the relevant sections. The department contended that the findings of the Commissioner (Appeals) supported the order. However, the Tribunal found that the appellants' activities of assisting in selecting granite blocks and executing export orders did not constitute Management Consultancy Services. As there was no consultancy aimed at management, rectification, or improvement of an organization's working system, the impugned order was deemed unsustainable. Consequently, the order imposing service tax demand, interest, and penalties on the appellants was set aside, and the appeal was allowed.This detailed analysis of the judgment highlights the key issues, arguments presented by both sides, legal interpretations, and the final decision of the Tribunal.