AI Drafter 
TaxTMI 
TaxTMI 
2014 (12) TMI 1235
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....bout Rs. 331 crores from various persons and of about Rs. 95 crores from ICICI Trustship Services Ltd., the hotel business of 'Regent Hotel' was acquired by the appellants. An agreement was entered between the appellants, LHL and ICICI Trustship Services Ltd., as ICICI was ready to pay the loans of various other parties payable by LHL to the tune of Rs. 331 crores for settlement of repayment of loans and transaction of transfer of the ownership right to the appellants. Therefore, as per the agreement, the share of the ICICI Trustship Services Ltd., was 80.1% and the share of the appellant was 19.9% and new company was formed and named as 'Taj Lands End Ltd.' As per the said agreement, the appellants have taken over the activities of the hotels such as develop, conduct, operate, manage, renovate, modernize and carry out all activities of incidental and ancillary business to the business of hotelering or otherwise. As per the said agreement, M/s. LHL was entitled for share of the profit on the basis of gross operational profits. 3. After going through the agreement in detail and various clauses thereof, the department was of the view that the activity undertaken by the appell....
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....td." w.e.f. 19-3-2003. On the same day, the name of the company was further changed from "Taj Lands End Pvt. Ltd." to "Taj Lands End Ltd.". Likewise, the name of the hotel was changed from "Regent Hotel" to "Taj Lands End" w.e.f. 10-9-2002. With effect from 1-4-2006, Taj Lands End Ltd. merged with appellant pursuant to Hon'ble Bombay High Court's order dated 9-3-2007. 7. In support of the above contentions of the appellant, ld. counsel submits as under :- (A) The expression 'licensing agreement'/'license fees' is misnomer, as, it was a takeover of the Regent Hotel owned by LHL by the appellant and hence, it is a sale and purchase transaction which could have been concluded on disposal of sundry creditors, transfer of shares, etc. It is a settled position of law that the substance of the agreement is to be considered and not the wordings used in the agreement, based on the Hon'ble Supreme Court judgment in the case of Bhopal Sugar [(1977) 3 SCC 147]. (B) Various clauses, which are reproduced in all the three agreements, would substantiate that it is a case of purchase of Regent Hotel from LHL through the processing of purchase of sha....
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....nt, which was to be utilized for payment of Debenture Redemption Instalments and Interest on Debentures. Any excess amount would be payable back to TLEL provided no amount for interest or redemption of Debentures was due and outstanding. (E) The submissions made hereinafter would further substantiate that the impugned order is neither sustainable on merits nor on limitation, inasmuch as : (i) that 'Regent Hotels' owned by Lokhandwala Hotels Ltd. was acquired by appellants under Shareholders and Share Acquisition Agreement dated 9-9-2002 and name of hotel was changed from 'Regent Hotel' to 'Taj Lands End'; (ii) that appellants also acquired the company M/s. Lokhandwala Hotels Ltd. and changed the name of the company to 'Taj Lands End Ltd.' and held 19.9% share capital in the same and remaining 80.1% share capital was held by a Trust, i.e., ICICI Trusteeship Services Ltd., which was under control of appellants; (iii) that after acquisition of hotel business of 'Regent Hotel', ownership of assets/property in the said hotel continued with M/s. Lokhandwala Hotels Ltd.,....
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....sp; Basti Sugar Mills Co. Ltd. - 2007 (7) S.T.R. 431 (T) (a1) Upheld by SC - 2012 (25) S.T.R. J154 (S.C.) (b) Daurala Organics - 2009 (14) S.T.R. 620 (T) (c) Sundaram Finance Ltd. - 2007 (7) S.T.R. 55 (T). The ratio of the said judgments would squarely cover the present case and further the judgment in the case of Basti Sugar (supra) stands upheld by Hon'ble Supreme Court therefore, any view contrary would not be permissible invoking the judicial discipline. (x) that the test for coverage under "Management Consultant Service" is - Whether advice has been rendered for improving an existing organization by conceptualizing, devising, development, modification, rectification or upgradation, as held in the following cases, which is not so in the present case : (a) Nirulas Corner House Pvt. Ltd. - 2009 (14) S.T.R. 131 (T). (b) Telephone Cables Ltd. - 2007 (7) S.T.R. 657 (T) ....
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....business and also believed that no service tax is payable in respect thereof. Under these circumstances, when appellants have acted under a bona fide belief that service tax is not payable, they cannot be alleged to have suppressed any information or wilfully misstated any facts, etc.; (d) that extended period is invocable only when there is positive act other than mere failure on the part of assessee and there must be conscious or deliberate withholding of information by the assessee, based on the following judgments : (i) Padmini Products - 1989 (43) E.L.T. 195 (S.C.) (ii) Chemphar Drugs - 1989 (40) E.L.T. 276 (S.C.) (iii) Nestle India - 2009 (235) E.L.T. 577 (S.C.) (e) that when legal interpretation of provisions is capable of two or more different interpretations and if assessee inte....
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.... (ii) Kirloskar Oil Engines - 2004 (178) E.L.T. 998 (T) With regard to the above judgments, Hon'ble Bench pointed out that the aforesaid issue has been referred to Larger Bench in the case of Uday Sponge Power Ltd. [2011 (264) E.L.T. 241 (T)], in which case, it was respectfully submitted that extended period would not apply. (xiv) in absence of any deliberate and conscious withholding of any information whatsoever from the Department, appellants cannot be held to have suppressed any information which they were not statutorily required to submit and hence, extended period is not invocable; (xv) that when appellants have acted bonafidely, neither extended period nor penal provisions are invocable. (xvi) that when there was bona fide belief that service tax is not payable, there was reasonable cause, for failure to pay service tax, hence, penalty is not imposable under Sections 76, 77 & 78 at all, in view of Section 80, as held in the following cases : (a) ....
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....se submissions, he prayed that the impugned order is required to be set aside on both counts, merits as well as on time bar. Consequently, penalties are also not imposable on the appellant. 8. On the other hand, ld. AR opposed the contention of the ld. Counsel and submits that the appellant is admittedly in the business of running of hotels and they are having licence agreement with the other hotels whereas the same activities are taken over by the appellant specifically in the case of 'Piem Hotels & Oriental Hotel Ltd.' where they are paying service tax on the said activity. Therefore, the appellant are required to pay service tax on the said activity. 9. He further drew our attention to the certain clauses of the agreement which are reproduced herein as under : "(i) IHCL shall pay to LHL consideration comprising of Licence Fee, semi-annually by way of splitting of Gross Operating Profit (GOP) ranging from 70% to 50%. (ii) The staff of the hotel, which were there on the employment rolls of LHL prior to and after the execution of the Licence Agreement, shall continue to be employees of the LHL. (ii....
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....running the affairs of an organisation in organised and systematic manner, as opined by the IIM, Ahmedabad. Therefore, the "Management Consultant" will include the services where the service provider is managing the activity of a client. As per the agreement dated 9-9-2002, IHCL shall pay to LHL, consideration comprising of licence fee, semi-annually by way of splitting the GOP. Further, IHCL is holding shares to the extent of 18.9% but it comes to sharing of profit they are retaining 30% to 50% of the profit which indicates that the amount retained by them is in lieu of services provided by them. 11. It is further submitted that the contention of the appellant that they were conducting, managing and operating their own business and they have paid rent in the form of licence fee to LHL towards renting of assets by LHL is contrary to the terms and conditions spelt out in the said licence agreement. In common parlance, the term, 'licence fee' or 'rent' is referred to pre-determined and fixed periodical amounts payable to landlord and normally has no concern or nexus with the profit or loss incurred/to be incurred by the tenant or lessee. In the instant case, the amount of lic....
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....f LHL and for that they were receiving consideration as percentage of GOP. Therefore, it is a case of wilful misstatement and suppression. To support this contention, he relied on the decision of Bajaj Auto Ltd. - 2010 (260) E.L.T. 17 (S.C.). 15. Heard both sides. Considered the submissions. 16. In this case the issue before us is whether the appellants are liable to pay service tax under the category of Management Consultancy Service or not, and whether the demand is barred by limitation or not. 17. The Larger Bench of the Tribunal in Pagaria Auto Center vide Interim Order No. M/35/14/SMB/LB/C-IV, dated 12-9-2013 [2014 (33) S.T.R. 506 (Tri.-LB)] has observed as under :- "20. On a consideration of the apparent conflict of opinion in the decisions mentioned in the order of reference and the other decisions which were cited at bar, it is clear that no uniform principle emerges as would guide determination of whether a particular transaction involving an interface between an automobile dealer and banker financial institution would per se amount to BAS. The identification of the transaction and its appropriate classification as the taxable BAS or o....
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....under this Agreement shall be payable in instalments and, shall be of such amount which shall be determined in the manner set out below : 1st instalment : Amount payable as License Fees shall be 80% of the GOP of the Hotel for the period from the Appointed Date to 31st of December, 2002. 2nd to 10th instalment : Amount payable as License Fees shall be 70% of the GOP of the Hotel of the Semi-Annual Period immediately preceding the Payment Date applicable for such instalment. 11th to 20th instalment : Amount payable as License Fees shall be 60% of the GOP of the Hotel of the Semi-Annual Period immediately preceding the Payment Date applicable for such instalment. 21st to 30th instalment : Amount payable as License Fees shall be 50% of the GOP of the Hotel of the Semi-Annual Period immediately receding the Payment Date applicable for such instalment. 31st instalment : Amount payable as License Fees on the date of expiry of the Term of this Agreement shall be 30% of the GOP of the Hotel for the period from the end of the Semi-Annual Period considered for calculating the 30th instalment till the end of the Term of this Agreement. Provided how....
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....& Retention Account to be opened by LHL with ICICI Bank in accordance with the terms of the Trust & Retention Agreement. 4.5 .... 4.6 LHL shall bear and pay all taxes as applicable to all income that LHL earns pursuant to, or under this Agreement, if any tax is to be deducted at source on the payment of Consideration to LHL, IHCL shall do so and furnish appropriate tax deduction certificate(s) to LHL. 5. USE OF ASSETS 5.1 LHL confirms having handed over to IHCL, the Hotel together with the right to use all existing movables, fixed assets and facilities for the purpose of the Operation of the Hotel to which IHCL acknowledges. All items including Facilities, Furniture, Furnishings, fixtures, paintings, equipment and all other amenities and support services presently available to the Hotel have also been handed over to IHCL and an inventory of the same shall be prepared and signed by both the Parties within 30 days of the Appointed Date and the same shall be deemed to be a part of this Agreement (collectively referred to and called "the LHL Assets"). IHCL may at its cost have the right to replace any of the LHL Assets with the pr....
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.... except for circulating and logo supplies at a mutually agreed consideration. In the event any of the Stores & Supplies that have been paid for and taken over by IHCL is/are in any manner hypothecated, charged or encumbered by LHL with any bank, financial institutions or any other person, LHL shall undertake to free, release and discharge such Stores & Supplies from such hypothecation, charge or encumbrance. All the Stores & Supplies after the Appointed Date shall at all times, belong to IHCL and be the property of IHCL. Upon expiry or sooner termination of this Agreement, LHL agrees and unconditionally undertakes to take over all Stores & Supplies except those bearing the "Taj" logo at the values attributed in the books of account of IHCL. IHCL shall be entitled to raise loans/effect borrowings for financing the operations of the Hotel by offering all current assets as security. 6.2 All the book debts in respect of the Hotel pertaining to the period upto the Appointed Date shall be to the account of LHL. Amounts if any, received by IHCL, with respect to such period, subsequent to the Appointed Date, shall be credited by IHCL to the account of LHL. 7. EX....
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....thing necessary to assist IHCL to obtain such permissions/approvals. 10.2 LHL confirms that all the assets whether movable or immovable created by IHCL as a result of the expansion shall at all times belong to and be owned by IHCL and shall not form part of the security which LHL has created or has agreed to create in favour of the Secured Lenders. LHL further confirms and agrees that subject to Section 10.3 hereunder, IHCL shall be entitled to raise loans/borrowings by offering its assets, either movable or immovable, created by IHCL in terms of this Agreement as security, IHCL shall have the right to take away all such assets on the expiry of the Term of this Agreement or on earlier termination of the Agreement provided that before removing such assets, IHCL shall offer to sell the same to LHL for purchase at a fair price to be mutually agreed upon between the Parties or at a value determined by professional valuers which will be final and binding on both the Parties, failing which within 90 days, IHCL shall take away all such assets. However, in respect of the Hotel building and other assets the removal of which will cause irreparable damage to the Hotel building, ....
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.... riots, insurgency, civil strife/commotion, terrorism, electrical fire, machinery/equipment breakdown. The Secured Lenders may at their option allow IHCL to utilise such proceeds from insurance obtained in respect of LHL Assets towards the replacement of the loss assets or restoring the loss assets to its original form and the balance amount, if any, outstanding after such restoration or replacement of assets is carried by the Parties to their satisfaction, shall be utilised by the Secured Lenders to appropriate the outstanding loan amounts due and payable. It is hereby clarified that in relation to LHL's assets being restored or replaced under the insurance policy obtained in relation to LHL Assets, the owner of such replaced or restored assets would be LHL. In the event IHCL's assets are restored or replaced under the insurance policy obtained in relation to IHCL's assets, the owner of such replaced/restored assets would be IHCL. 14.1 During the Term of this Agreement, the Hotel shall be known and designated by such name as from time to time may be selected by IHCL. IHCL may permit the use of any of its Intellectual Property Rights, service marks, ....
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....h would in any way adversely affect the interest of LHL during the term of this Agreement. 16.1 IHCL agrees, undertakes and declares that : (a) It shall during the Term of this Agreement pay and discharge all Operating Expenses. (b) It shall use, occupy, run, operate, conduct, manage and maintain at its cost the Hotel in accordance with acceptable quality standards and make available to the Hotel professional expertise and Hotel related technology as may be required in the opinion of IHCL for a Hotel of this standard and reputation. (c) ... (d) It shall pay and discharge all the current liabilities and/or expenses incurred after the Appointed Date save and except as otherwise provided in this Agreement. (e) It shall pay and discharge all taxes imposed or payable in law for providing the services during the Term of this Agreement. (f) .... (g) it shall pay and discharge all the existing fees levied or demanded or payable to the Municipa....
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....ll respects as if the name of the purchaser was substituted for LHL herein. Any right to exercise the option under this Section shall be exercised with the prior written consent of the Secured Lenders." 20. We find that in this case the object of the agreement is that the appellants are in the process of acquisition of hotel in question by raising funds and payments towards the owners of the hotel by way of the agreement in question. In these circumstances, appellants are managing the hotel by doing all the activities and by issuing the invoices in their own name, i.e., The Indian Hotels Co. Ltd. 21. The ld. AR has submitted that the appellant are having their share in the profit of the hotel run by them, but are not sharing the losses incurred by the hotel. Therefore, it cannot be termed as licence fee or rent and he has also submitted that no prudent business entity shall offer such huge property or running commercial enterprise on rent/lease without seeking any security. In fact by executing the agreements stated hereinabove, the interest of the LHL was secured and on the other hand, a prudent business entity would not continue incurring losses which LHL was doin....
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....e First Part hereby entrusts the operation of the Factory to Party of Second Part for its functioning at optimum efficiency under the overall supervision of Dr. K.R. Narang and Dr. S.K. Garg who will constitute for the purpose of day-to-day operation of the Factory, a management committee to achieve the desired results. 2. To run the Factory continuously and to achieve optimum efficiency for the full sugar season, the Party of the Second Part will identify, recruit and appoint capable and efficient, technical, administrative and financial staff, wherever required, in consultation with the Party of the First Part. 3. The Staff recruited and appointed as referred in para 2 of this agreement shall be on the pay rolls of the Factory and shall be paid remuneration as employees of the Party of the First Part. 4. That the workmen and staff already employed in the Factory and the new staff appointed by the Party of the Second Part will continue to remain the employees of the Party of the First Part. 5. That both ....
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....y of the First Part. The modus operandi will be decided mutually. 13. The party of the Second Part has agreed to use funds provided by the Party of the First Part and generated in the Factory or loan raised for the Factory shall exclusively be used for the functioning of the Factory and no diversion of funds for any other purpose shall take place. 14. That the Party of the Second Part will not provide any security/guarantee for any loan/financial assistance from Banks/FI's. This obligation will remain with the Party of the First Part. 15. That the Party of the Second Part has agreed to make thorough study about technical, financial and administrative aspects of the Factory and if required take up the restructuring wherever necessary, in consultation with the Party of the First Part. 16. Both the Parties have agreed that after first year of successful operation and after obtaining necessary approvals of Government authorities, financial institutions, banks, etc., wher­ever required, the capacity of the plant shall be expanded to 5000 TCD for which a....
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....se the investigation was started in the month of March, 2005 and all the details were provided by the appellant by December, 2005 and the show cause notice was issued in 2008 only by invoking the extended period of limitation. As the activity was of the appellant was known to the Revenue during the course of investigation itself, therefore, relying on the decision of Hindalco Industries (supra) and Kirloskar Oil Engines (supra), the show cause notice issued to the appellant is barred by limitation as same has not been issued during the normal period of limitation. Therefore, the appellants succeed on limitation also. 26. In the result, the impugned order is set aside; appeal is allowed with consequential relief, if any. (Pronounced in Court on ........) Sd/- (Ashok Jindal) Member (Judicial) 27. [Order per : P.R. Chandrasekharan, Member (T)]. - I have carefully gone through the order recorded by the learned Member (Judicial). However, I am unable to agree with the findings given therein. Therefore, I am recording a separate order. 28. The question for consideration is whether the services rendered by the appellant M/s. IHCL to M/s. LHL merit....
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.... (h) It will promptly pay the consideration in the manner provided in Section 4. (i) It will indemnify and keep indemnified LHL against any claim, liabilities, suit or legal proceeding if it arises on and after the Appointed Date directly due to its negligence or default in running, managing, conducting and/or Operating the Hotel. (j) It will ensure that all the requisite rules, regulations and laws applicable to the running, managing, conducting and operation of the Hotel are duly conformed to and/or complied with at all times. (k) It shall be responsible to keep at its cost, the Hotel building and the entire premises together with the fittings, fixtures, furniture, and other installations and LHL assets in a safe, good and sound condition, save normal wear and tear. (l) It shall be responsible to secure from time to time all necessary permissions, licenses or permits as may be required from the authorities concerned in order to carry on the Hotel business to the acceptable standards in the Hotel. LHL shall ....
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....9A Byramjee Jejeebhoy Road, Bandra, Mumbai." It is therefore, clear that the appellants were not managing their own hotel but were undertaking the said activity for M/s. LHL. 28.2 Further as per Clause 4.3 of the agreement, the consideration paid to IHCL is specified and the said clause reads as follows : "4.3 In consideration of IHCL carrying on the Operations of the Hotel, IHCL shall be entitled to receive and appropriate the Net Sales amount." If as per the contention of the appellant, they were managing the affairs of the hotel on their own account, there was no need for specification of a clause relating to payment of consideration to IHCL. Therefore, this contention of the appellant that they were managing/operating the hotel on their own account is clearly incorrect and untenable in law. 28.3 It is also argued by the appellant that, M/s. LHL only made available the hotel and the assets therein on lease basis and, therefore, the transaction might come under the category of 'renting of immovable property'. However, this contention is clearly untenable for the reason that, in clause 27 of the agreement, it has been specifically provided that ....
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....luments of all staff including fringe benefits and welfare schemes; (c) The formulation and administration of personnel policies including transfer or termination of employment in consultation with the company; (d) Institution and supervision of operating policies, principles, systems and procedures for all departments, including purchasing, accounting, credit management, sales promotion, public relations, front office, housekeeping, security, kitchen, restaurant, Hotel engineering and maintenance, personnel, etc. (e) Institution of reporting and control systems and procedures for all department; (f) The establishment of all prices, price schedules, rates, and rate schedule; (g) The negotiation and execution in the normal course of Hotel business of licences and concessions including shops in the Hotel with the approval of the company; (h) The obtaining and granting of such other concessions and privileges as the Consultants and Advisors may deem necessary or desirable in connectio....
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.... such reputable international Hotel chains on other international bodies. Fees and other charges payable pursuant to such Agreement shall be paid by the company and shall form part of deductible expenses. ARTICLE VIII CONSULTATION FEES 1. As fees for the services covered by this Agreement, the company shall pay to the Consultants and Advisors 5% of the Gross Income plus Service Tax as applicable as defined in clause 4 of Article I. 2. In addition to 1 above, the company shall :- (a) Reimburse all reasonable travelling, telephone, telegraph, telex, subsistence and postal and all other out-of-pocket expenses incurred by the Consultants and Advisors while engaged on the business of the Hotel of the company; (b) reimburse the fees and other expenses payable to any outside consultants or specialised personnel employed or retained by the Consultants and Advisors with the previous approval in writing of the company; (c) reimburse the pro-rated costs of group advertising sales promotion and specialised facilit....
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....he scope of 'management consultancy services' as defined in law. 28.7 It has been argued that M/s. IHCL, the appellant herein, is not receiving any consultancy fees but the consideration is paid for the services rendered by allowing retention of the net sales amount, i.e., sale income minus expenditure and, therefore, since the consideration is paid by way of net sale amount, the transaction is not one of consultancy or advice. This contention of the appellant is clearly misplaced. The nature or mode of payment does not determine the nature of the activity. Compensation for the services rendered can be made either by paying a fixed sum or by taking services in exchange or by sharing profits made in the transaction. Merely because different modes are adopted for payment of consideration would not alter the nature of the transaction. In matters of taxation, it is a well settled position that the measure of the levy does not determine the nature of the levy. The nature of the levy is independent of the measure of the levy. This position has been made very clear by the Hon'ble Apex Court in the case of Bombay Tyre International Ltd. [1983 (14) E.L.T. 1896 (S.C.)]. In the said c....
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....ing 1-5-2006 to 1-6-2007, the revised definition read as follows : " 'Management Consultant' means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organisation in any manner and includes any person who renders any advice, consultancy or technical assistance, in relation to financial management, human resources management, marketing management, production management, logistics management, procurement and management of information technology resources or other similar areas of management." The definition underwent a further change w.e.f. 1-6-2007 and the amended definition read as follows : " 'Management or business Consultant' means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organisation in any manner and includes any person who renders any advice, consultancy or technical assistance, in relation to financial management, human resources management, marketing management, production management, logistics management, procurement and management of information technology resources or other similar areas of manage....
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....agement consultancy service' is really very wide and includes in its scope all gamut of activities rendered in connection with such service. 28.12 The scope of 'management consultancy services' was examined by the C.B.E. & C. in consultation with the Indian Institute of Management, Ahmedabad and the opinion obtained was communicated vide Board's Circular No. 1/1/2001-S.T., dated 27-6-2001, which reads as follows : "7. In this regard, the Board had consulted the Indian Institute of Management, Ahmedabad for obtaining an expert opinion on the subject matter. They have opined that the term "Management" is generally understood to mean running the affair of an organisation in an organised and systematic manner. To be able to do this efficiently and effectively, management typically involves carrying out a host of activities, functions and tasks and at different levels. Thus management encompasses both strategic and operational level functioning and would include tasks such as planning, organising, staffing, directing, controlling and coordinating. Management also invariably involves designing organisational structure around functions such as marketing, manufacturin....
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.... sitting under a banyan tree may mainly involve thought processes and discourses with no physical activity on the part of the saint towards assisting the recipient in the implementation of advice and, therefore, be purely a cerebral function, but that would be altogether different from the advice and consultancy of a qualified professional consultant engineer who is well versed with a discipline of engineering and has to render professional advice and consultancy to his client in respect of material objects that may require active technical assistance for making such advice and consultancy a meaningful and effective service. The expression "consultant engineer" cannot be understood so narrowly, as the learned Counsel would want us to believe in the engineering field, as is clear from the multifarious activities of consultant engineers declared by their own federation. The definition of "consultant engineer" which encompasses direct or indirect rendering of such service including technical assistance is, in our opinion, wide enough to embrace the training of personnel, software support, operation and maintenance services, emergency support services, technical consultancy, etc., of t....
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....ll and know-how and, therefore, the expression 'technical' should receive a broad interpretation to include professional/managerial services as well. The Court observed that as per the New Webster's Dictionary of English language, the word "technical" means what is characteristic of a particular art, science, profession, or trade and the word "technology" means the branch of knowledge that deals with the industrial arts and sciences; utilisation of such knowledge; the knowledge and means used to produce the material necessities of a society. Therefore, it was held that provision of technical know-how or technical service forms part of the managerial service and, therefore, the appellant would be eligible for the benefit of income tax deduction. In my considered view, the said ratio would apply to the facts of the present case. Merely because the appellant has undertaken operation of the hotel belonging to LHL, it does not cease to be a managerial service. From the terms and conditions of the agreement, it is seen that the appellant was required to undertake marketing management, human resource management, inventory management, financial management and a host of other activities for....
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....ing every word, have to be given full effect, keeping the legislative intent in mind, in order to ensure that the projected object is achieved. In other words, no provisions can be treated to have been enacted purposelessly. Furthermore, it is also a well settled canon of interpretative jurisprudence that the Court should not give such an interpretation to provisions which would render the provision ineffective or odious." Thus the expression "technical assistance" used in the definition of management consultancy service, has to be given full effect to and if this is done, then it can be easily seen that even executory functions rendered as part of the consultancy or advisory functions would also fall within the definition of 'management consultancy service'. 28.18 Reliance has been placed on the decision of the Tribunal in the case of Basti Sugar Mills Co. Ltd. v. Commissioner of Central Excise, Allahabad - 2007 (7) S.T.R. 431 which has been affirmed by the Hon'ble Apex Court. If one peruses the decision of the Apex Court, the only reason for upholding the Tribunal's decision in the Basti Sugar Mills Co. Ltd. was : "Admittedly, the revenue did not file any appe....
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....involved in the present case is substantially wider than that in the Basti Sugar Mills Co. Ltd.'s case. Therefore, the ratio of the said decision has no relevance, whatsoever, to the facts of the present case. 28.20 The next question for consideration is whether the extended period of time could be invoked to confirm the service tax demand. While the department has alleged suppression on the part of the appellant, inasmuch as the activities were not disclosed by the appellant to the department, either by way of declaration in the statutory returns or otherwise, the appellant's contention is that that the activity of taking over the property by IHCL was published in the newspapers and, therefore, no suppression can be alleged. This argument of the appellant is rather strange. The department is not expected to come to know of the activities of the appellant by reading about it in newspapers. Media will report various matters based on their understanding. Whether an activity falls within the statutory definition of a taxable service or not has to be discerned from the contracts entered into. So long as the contracts were not made available to the department, it is difficult fo....
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....llant has suppressed the information with intent to evade tax and therefore, invocation of extended period of time for confirmation of demand is justified. 28.22 The last question is with regard to imposition of penalties. As regards the imposition of penalty in the present case, penalty has been imposed under the provisions of Sections 76, 77 and 78 of the Finance Act, 1994. Penalty under Section 76 is imposable when there is a default or delay in payment of service tax. No mens rea is required to be proved for imposition of penalty under Section 76. Penalty under Section 77 is imposable for failure to comply with the service tax procedures. In this case also there is no requirement of any mens rea. Only for the purpose of penalty under Section 78 mens rea is required to be proved. This position is well settled by the decision of the Hon'ble High Court of Kerala in the case of Krishna Poduval v. Asst. Collector of Central Excise [2006 (1) S.T.R. 185 (Ker.)]. Therefore, imposition of penalty under Sections 76 and 77 on the appellant in the facts of the present case cannot be faulted at all. 28.23 As regards the penalty imposed under Section 78 of the Finance Act, 19....
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....indal) Member (Judicial) 32. [Order per : P.S. Pruthi, Member (T)]. - I have carefully gone through the findings recorded by my ld. Brothers and their Difference of Opinion. 33. The facts of the case have been dealt with in some detail by both Member (Judicial) and Member (Technical). Therefore, I will not repeat all the facts except where it may be necessary to highlight some details and to support the reasoning given by me. 34. Heard both sides. 35. The ld. Counsel for the appellants explained that the owners of Regent Hotel, i.e., Lokhandwala Hotels Pvt. Ltd. were debt trapped and Indian Hotels Co. Ltd. (IHCL) proposed to acquire the hotel. The entire exercise of transfer of the erstwhile Regent Hotel owned by M/s. Lokhandwala Hotels Pvt. Ltd. (LHL) to the Indian Hotels Co. Ltd. (IHCL) was done within the framework of six agreements, namely : (i) Share acquisition and subscription agreement amongst IHCL, LHL and ICICI Trusteeship Services (I-Ventures) and promoters of LHL. (ii) Shareholders agreement amongst IHCL, ICICI Trusteeship Services (I-Ventures) and LHL. (iii)&nb....
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....ltancy service, he showed that whereas the fees from management consultancy, when charged at 5% of revenue (which is the management fee charged by them in the case of their agreement with Piem Hotels as 5% of gross income) will amount to Rs. 15.51 crores only for four years, i.e., from 2002-2003 to 2005-2006, the profit actually returned by them as per their License Agreement amounts to Rs. 51.52 crores as indicated in the chart below. Year Total Revenue of Hotel Management fees @ 5% of Revenue Gross Operating Profit (GOP) License fees paid to TLEL Profit retained by IHCL A B C D E=C-D 2002-03 32,51,12,556 1,62,55,628 12,32,62,270 9,30,52,153 3,02,10,117 2003-04 69,63,04,534 3,48,15,227 27,10,34,813 16,26,20,888 10,84,13,925 2004-05 91,52,16,113 4,57,60,806 38,84,94,977 23,30,96,986 15,53,97,991 2005-06 1,16,62,91,547 5,83,14,577 55,30,42,414 33,18,25,448 22,12,16,966 Total 3,10,29,24,750 15,51,46,237 1,33,58,34,474 82,05,95,475 51,52,38,999 39. He further stated that, at para 28.2 of his Order, Member (Technical) has only picked a part of clause 4.3 of....
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....ultancy Service. 41. The ld. Counsel relied on the judgment in the case of Basti Sugar Mills (supra) which, according to him, squarely applies to the facts of the present case and which was affirmed by the Supreme Court. On the issue of time bar he stated that since Member (Technical) has held there is no mens rea and hence penalty is not imposable under Section 78 of the Act, therefore, on the same ground, extended time period cannot be invoked under Section 73 of the Act, because the ingredients of Section 73 of the Act are the same as ingredients required to impose penalty under Section 78 of the Finance Act, 1994. He relied on I2IT Pvt. Ltd. v. Commissioner of Central Excise, Mumbai - 2014 (34) S.T.R. 214 (Tri.-Mumbai). 42. Ld. AR reiterated the findings of the adjudicating authority and the Member (Technical). He drew my attention to the various clauses of the License agreement especially clause 4.3 which states that IHCL shall be entitled to receive net sales amount; clause 11.1 which says that IHCL and LHL will hold discussions to formulate strategies for increasing the business of LHL and, the various sub-clauses in clause 16 to justify that IHCL is providin....
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.... of the complex arrangements, IHCL had also entered into a License Agreement with LHPL (later the name of LHPL was changed to Taj Lands End Ltd.) to the effect that the hotel which stood in the name of LHPL was given to IHCL on a license basis to enable the latter to run the hotel on its own. It is this fact which is being stressed upon by the ld. Counsel and he emphasized that, although the owner of asset is LHPL, whereas the owner of business of running the hotel is IHCL. This contention is convincing because service can be said to be provided by one entity to another only when the first entity undertakes an activity or performs a service for another for a consideration. From the Agreements, it does not appear that IHCL was running the hotel as a service to LHPL. In fact IHCL was part owner of the asset, i.e., LHPL, the remaining part owner being ICICI I-Venture who had parted with a huge loan of Rs. 330 crores which was primarily utilized to repay the existing debt of LHPL. If IHCL was part owner of LHPL, it can hardly be said that IHCL was providing service to itself to the extent of its ownership of LHPL. The other owner, i.e., I-Venture was essentially a lender who was eased ....
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.... reliance on this clause by the ld. AR does not help the cause of Revenue. 47. In all businesses there are risks and rewards. From the arrangements it is seen that the entire risk and reward depended on how IHCL ran the business. This is evident from the fact that : • The invoices were issued by IHCL and the revenue from the hotel belonged to IHCL. • IHCL collected various taxes such as VAT, luxury tax, etc. and deposited the same under its own registration number. • All expenses were incurred by IHCL. 48. The view of ld. Member (Technical) is that the services provided by IHCL in the present case are on similar lines as the services provided in the case of their (IHCL) agreement with Piem Hotels. In my view, in various agreements for running different hotels, there could be some terms in the agreements which are similar because the hotel would be operated by IHCL in the same manner. However, a comparison of the clauses in the Agreements reveals that the essence of the two Agreements lies in the way they control the running of the hotel. Some the clauses in the two agreements may be seen below : LICENSE AGREEMENT MANAGEME....
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....age, charge, liens, etc., on the hotel and any constructions thereto except with the prior approval of IHCL. No specific clause on this. INITIAL RENOVATION Clause 9.1 1. IHCL shall carry out the initial renovation work at the Hotel at its own cost. No specific clause on this. LATER STAGE RENOVATION/ADDITION Clauses 9.2 & 9.3 1. IHCL shall have the right to carry on such work as may be necessary to ass/ renovate/repair, etc. Prior written approval should be obtained for any major alterations, etc. 2. All assets added as a result of IHCL bearing the cost, shall exclusively belong to IHCL. 3. On expiry of term of agreement, work which if removed will cause permanent damage to the building will be purchased by LHL at book value. Other removable assets, shall be offered to LHL for purchase at fair value within 90 days, failing which IHCL can remove such assets and take it away. Article VII-Section I(o) - Page 7 1. IHCL shall carry out repairs, alterations, etc. for proper maintenance. 2. Any capital expenditure should be incurred after obtaining written appr....
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....the owning Co. out of the receipts of the hotel. INSURANCE Clause 12 1. For LHL assets - Cost of renewal of policies will be of IHCL but beneficiaries will be LHL and secured lenders. 2. For IHCL assets - Cost and beneficiary of policy will be IHCL. 3. LOSS OF PROFIT POLICY - IHCL shall take it in joint name of IHCL and LHL. IHCL shall be the sole beneficiary of proceeds recovered from such policy. 4. In the event that it becomes impossible for IHCL to run the Hotel on the happening of events covered under the policy, the performance of obligations/covenants by IHCL shall be suspended during such period. Article XII 1. The Owning Company shall procure and maintain adequate-Fire, Earthquake, Riot, Strike, Liability insurance in consultation with IHCL. 2. The Owning Company shall, in consultation with IHCL maintain a Consequential Loss of Profit insurance policy. The owning company will procure and maintain all insurance policies, including the Loss of profit policy. BANK ACCOUNT Clause 15.1(v) 1. IHCL shall have right to operate bank account ....
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.... of both entities in the running of the hotel by IHCL. Therefore, the two agreements are critically different and the Agreement with LHL shows that IHCL is actually running the hotel not as a service to another entity but on its own account. 49. Had IHCL been doing consultancy service, the profit as a percentage of the income would have been much more. Although, the amount of profit earned does not decide the nature of activity, yet it is a good indication that management consultancy service was not provided. Heavy reliance has been placed on Board Circular No. 1/1/2001-S.T. (Section 37B), dated 27-6-2001 to justify that "management" would also include running of the organization in a systematic manner. In my view, reliance on Board Circular is out of place because it is based on an opinion of the Indian Institute of Management on a specific query, i.e., whether the service provided in respect of merger and acquisition is a management consultancy service? It was in this context that the Indian Institute of Management, Ahmedabad opined that Management of any organization involves carrying out a wide variety of clearly defined activities and management consultant would includ....
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....rganization, any advisory services rendered in merger and acquisition transaction are also includible under the taxable service rendered by 'management consultant'." The Board Circular never intended to nor expressly states that running a business such as a hotel would amount to a service being rendered to the owner of the asset. 50. Reliance has been placed by the appellant on the decision of the Tribunal which was affirmed by the Hon'ble Apex Court in the case of Basti Sugar Mills Co. Ltd. (supra). In its order the Hon'ble Apex Court stated that the earlier decision of Tribunal in Rolls Royce Indus Power Ltd. was not appealed against and therefore, dismissed the appeal of Revenue in the case of Basti Sugar (supra). I note that in the case of Rolls Royce Indus Power Ltd. the issue was based on similar facts as in the present case. In that case the operation and maintenance of the power plant by the appellant was considered as outside the scope of Consulting Engineer Service. In the present case also, IHCL are operating the hotel. The present case is stronger footing because the appellant are not receiving any consideration in the form of fees or commission only; they are a....