In the present Case the Amount of Demand was Rs. 4,89,65,321/- with penalty Rs. 4,89,65,321/- with Interest and other penalties

The issue involved in this case was whether the services rendered by the appellants would amount to the services rendered by a management consultant.

In the present case:

It was not disputed by the appellants that they have received an amount of Rs 8.22 crores from M/s CEAT Ltd., and other sums from other companies towards the contribution in terms of the agreements between M/s RPG and M/s CEAT Ltd & others. 

It was also not disputed by the appellants that they have provided assistance and services to M/s CEAT Ltd., and others. 

The appellants' dispute was on the question as to whether rendering of the services by them to the licencees is in the nature of the management consultancy services.

The dispute of the appellant was based on following grounds:

1.  They are not the management consultants;
2. They are a part of RPG group and not an outsider like a consultant;
3. Logo 'RPG' belongs to the appellants, which is used by the licensee companies   No management consultant allows his logo to be used by his clients;
4. Principle of mutuality "No person can render service to itself" A mutual concern, while deals only with its members, though may be a separate legal entity, is rendering service to itself;
5. The amount collected from the Group companies is recovery of expenses and the recovery of expenses is not a service;
6. Since the issue is purely legal and interpretational in nature, extended period of limitation should not be applied.

Tribunal had discussed all the arguments in details and decided as:

1     Memorandum of the Appellant states that the appellant is rendering services as management consultant;

2     Since all the group companies having independent identity, the principle of mutuality does not arise.

3     Before the ITO, the appellant has accepted that amount received is in the nature of consultancy fees and paid income tax thereon.

4     The nature of contract entered between the group companies are in the nature of client-consultant relationship.

5     The appellant are clearly liable to pay service tax under Management consulting Services.

6     The gross amount can not be considered as inclusive of service tax and service tax is payable on the gross amount.

7     Appellant is unable to prove that there was reasonable cause for the failure and therefore extended period of limitation can be invoked.

 

(For full text of judgment - visit 2008 -TMI - 30816 - CESTAT MUMBAI)

Management consulting services: intra group cost recoveries treated as taxable services, attracting service tax on gross amount. Intra group provision of assistance and services, even on a no profit cost recovery basis, constitutes management consulting services where recipient companies have independent legal identity, contracts reflect client consultant relationships, and the provider has treated receipts as consultancy fees; such receipts are taxable and service tax is payable on the gross amount, and inability to show reasonable cause permits invocation of the extended period of limitation.