2018 (6) TMI 669 - AT - Service Tax

Tribunal rulings on service tax demands for Franchise and Consultancy services, penalties waived due to interpretational issues.

Tata Consultancy Services Limited Versus C.S.T. -Delhi

The Tribunal upheld the service tax demands for Franchise Service and Management Consultancy Service, along with interest, but set aside penalties by ... Franchise Service - appellant has developed and is running a course called “Diploma in Advanced Software Technology (DAST) - Revenue was of the view that for the 25% amount retained by the appellant, the appellant is liable to pay service tax under the category of Franchise Service falling under Section 65(47) of the Finance Act, 1994 - Held that:- The issue has been decided against the assessee in appellant’s own case CMC Ltd. V/s Commissioner Hyderabad [2011 (4) TMI 242 - CESTAT, BANGALORE] - the appellant is liable to make payment of Service Tax under the category of Franchise Service for the full period of demand - penalties are set aside. Management Consultancy Service - Revenue was of the view that the activities performed by the appellant in terms of the agreement with DST were liable to payment of service tax under category of Management Consultancy Service falling under Section 65(65) read with Section 65(105)(k) of the Act - Held that:- When we carefully consider the definition of Management Consultant as it existed during the different periods, it is evident that the appellant has not carried out management of any complete organization such as the DST. But what has been done is technical assistance in the operation of the computer systems of DST and management of the Centre. Such activities, definitely are liable to be covered within the terms ‘Technical Assistance in relation to….. any working system of any organization’, In the definition prevalent during w.e.f. 01/05/2006 to 01/06/2007, the activities performed by the appellant would be even more specifically covered under ‘Technical Assistance in relation to…… management of information technology resources’ - the activity performed by the appellant for DST would be covered within the definition of management consultancy services during the period of dispute. Manpower recruitment or supply agency service - the appellant carried out the activities of application data management, pre-examination and post-examination activities. Such activities were in the nature of back end activities and supported the manpower recruitment activity of the client by providing various Services - Revenue was of the view that such activities were covered within the definition of Manpower Recruitment and Supply Agency Service falling under Section 65(68) read with Section 65 (105)(k) - Held that:- The appellant does not deny the fact that the activities are in the nature of pre recruitment work but claims that it willl be covered within the definition only after the insertion of the Explanation w.e.f. 01/06/2007 - The definition covers service rendered to any person in relation to recruitment or supply of manpower. Evidently, the pre recruitment work provided by the appellant would definitely come within the category of ‘service rendered in relation to supply of manpower’. No doubt the Explanation has made this explicit but we are of the view that the activity is covered by the definition even without reading the Explanation retrospectively - demand upheld. Extended period of limitation - Held that:- While we uphold the invoking of suppression clause in the initial show cause notice dated 04/07/2008 for the reasons recorded by the Adjudicating Authority in para 20, we are of the view that the Revenue is precluded from raising the same clause again in the subsequent show cause notice dated 26/02/2010 - we set aside the portion of demand under the category of Management Consultancy Services as well as Manpower Recruitment or Supply Service vide show cause notice dated 26/02/2010, which falls outside the normal time limit in Section 73. Penalties - Held that:- the penalties set aside, by taking recourse of Section 80 since in respect of all the issues interpretation of the provisions is involved. Appeal allowed in part. Issues Involved:1. Franchise Service2. Management Consultancy Service3. Manpower Recruitment or Supply Agency ServiceDetailed Analysis:1. Franchise Service:The appellant offered a 'Diploma in Advanced Software Technology (DAST)' course through its own centers and affiliated centers, retaining 25% of the fees collected from students. The Revenue contended that this 25% retention qualified as a Franchise Service under Section 65(47) of the Finance Act, 1994, and demanded service tax for the period 01/07/2003 to 30/06/2004 amounting to Rs. 2,14,225. The appellant argued that the demand was time-barred, citing a previous Tribunal decision (CMC Limited vs. Commissioner) and claimed a bona fide belief that their activities were exempt under Notification No. 9/2003 ST dated 20/06/2003. However, the Tribunal upheld the demand, referencing the appellant's own case where the Supreme Court dismissed the appeal. The Tribunal set aside penalties by invoking Section 80 of the Act, acknowledging the appellant's bona fide belief.2. Management Consultancy Service:The appellant had an agreement with the Department of Science and Technology (DST) to provide Facility Management Services, including data entry, software development, and IT support. The Revenue asserted that these services fell under Management Consultancy Service as defined under Section 65(65) read with Section 65(105)(r), demanding service tax for the periods 01/04/2003 to 31/03/2006 and 01/04/2006 to 31/03/2007 amounting to Rs. 2,44,99,380 and Rs. 4,53,022 respectively. The appellant argued that their role involved operational management, not consultancy, and cited several case laws to support their stance. The Tribunal examined the statutory definitions and concluded that the appellant's activities were indeed covered under Management Consultancy Services, particularly under 'technical assistance in relation to management of information technology resources.'3. Manpower Recruitment or Supply Agency Service:The appellant provided pre-recruitment services such as data entry, application analysis, and examination processing for Hindustan Aeronautics Limited and Food Corporation of India. The Revenue categorized these activities under Manpower Recruitment or Supply Agency Service as defined in Section 65(68) read with Section 65(105)(k), demanding service tax for the periods 01/04/2003 to 31/03/2006 and 01/04/2006 to 31/03/2007 amounting to Rs. 21,07,763 and Rs. 1,14,81,142 respectively. The appellant contended that these activities were included in the taxable service definition only after an explanatory amendment effective from 01/06/2007 and should not apply retrospectively. The Tribunal, however, held that the services were covered under the main definition even without the explanation and sustained the demand on merit.Conclusion:The Tribunal upheld the service tax demands for Franchise Service and Management Consultancy Service, along with interest, but set aside penalties by invoking Section 80 due to interpretational issues. For Manpower Recruitment or Supply Agency Service, the Tribunal sustained the demand on merit but set aside portions of the demand that fell outside the normal time limit under Section 73, referencing the Nizam Sugar Ltd. case. The appeals were partly allowed.