AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2008 (4) TMI 168
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....terest @ 18% p.a. from 16.10.98 to 16.8.01, @24% upto 16.8.02 and 15% p.a. w.e.f. 17.8.02 for the period by which the credit of the said Service Tax is delayed as provided under Section 75 of the Act ibid; The appellants were also directed to pay in addition to paying Service Tax. and interest as above, a penalty of Rs 200/- for every day during which such failure continues so however that the penalty under this clause shall not exceed the amount of Service Tax not paid as provided under Section 76 of the Act, ibid; He also imposed a penalty of Rs 1000/- under Section 77 of the Act ibid for failure to file return in Form ST-3; He also imposed a penalty of Rs 4,89,65,321/- under Section 78 of the Act ibid. 2. Heard both the sides and perused the records. 3. The issue involved in this case is whether the services rendered by the appellants would amount to the services rendered by a management consultant. 4. The appellants have contended as under: (i) For tax to be levied, two conditions are to be simultaneously fulfilled ; service should relate to management; Service provider should be a management consultant. It is the contention of the appellants that the latter con....
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....roup companies only and that too by joint discussions. Also costs and expenses are shared between the licensees and there is never an attempt made to earn profit. Such an entity, according to them, can never be described as a management consultant in ordinary parlance at all. (v) (a) 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, when it services its members and hence is not liable to service tax; (b) That the service provider and service receiver are separate legal entities is irrelevant, if mutuality exists. This is laid down by the Hon'ble Supreme Court in the case of Young Men's Indian Association, Madras and Others reported in 1970 (26) STC 241; (c) For the mutuality principle to apply, there must be complete identity between the contributors and the participators. In the present case, those who share expenses and receive the service are identical and, therefore, the mutuality principle will apply. They cited the Supreme Court's judgement in the case of Chelmsford Club vs CIT, Delhi reported in (2000) 3 SC....
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.... and allowing the appeal, with consequential relief. 6. The learned Joint C.D.R. took us through the various portions of the orders passed by the lower authorities below to high-light that the appellants are nothing but Management Consultant only and they are rendering management consultancy services to their dedicated clients and are liable to service tax. According to him, the demands have been rightly confirmed and the penalties correctly imposed. 6.1 He stated that the contention of the appellants that they run on "No profit, No loss" basis and only recover cost from the licensees and hence service tax is not payable is irrelevant and out of context. In indirect taxes like Central Excise, Customs, Service Tax, leviability/chargeability is unconnected with Profit or Loss. So long as the taxable service is provided and received and the taxable value is collected and paid, the Service Tax is collectable. The appellants are recovering the amount and showing the same under the head "income" in their balance sheet. Also, admittedly they recover all the expenses right from the printing and stationery to the postage and communication expenses, staff sala....
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....anies Act. Commonality of a stray director or a promoter is of no relevance in the present context; (d) The agreement entered into by the appellants and Service Receivers are purely commercial contracts and there is no dispute on that. (ii) As regards, the principle of Mutuality and the case laws cited by the appellants in this regard, the learned Jt C.D.R. maintained that they are not applicable to the facts of the present case and are distinguishable. (iii) He stressed that the extended period is invokable, as the appellants never brought to the notice of the Department any of the activities undertaken by them and never corresponded to obtain any clarification or opinion from the Department. Bona-fide belief is not blind belief. There is no basis or foundation established of Bona-fide belief. He relied upon the following judgements in support. (a) 2005 (191) ELT 1051 Winner Systems vs CCE & Cus, Pune in which it has been held that blind belief cannot be a substitute for bonafide belief; (b) 2004 (173) ELT 31 Air Cell Divilink India Ltd vs CCE, Jaipur wherein it has been held that there was nothing on record to suggest if the ....
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....toring such industrial, commercial and trade practices as are conducive to the attainment of excellence in quality of their products and services (with the continuous striving for upgradation of their standards) inculcating virtues of social responsibilities and thereby enhancing the value of business to society. With a view to assisting the said licensees in upgrading their efficiency and availing of the benefit of mutual experience to develop a suitable organization for the following: i) To identify business opportunities in India and /or abroad and extend professional expertise in technology assessment and business evaluation ; ii) To develop and provide a pool of general economic and industrial intelligence information in diverse areas including finance, taxation, legal, insurance, risk management , data processing, information, systems, marketing, drafting, leasing agency and public relations; iii) To develop a cadre of managers and make available management expertise; iv) To develop a suitable infrastructure for protection of property including intellectual rights of the said licensees. v) The following paragraphs of Memorandum of Association explain the objectiv....
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....to act as management consultants in finance and other fields providing advisory services, consultancy in various fields, etc. All these activities would, without doubt, come under the 'Management Consultancy Services'. 9. It is 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 is also not disputed by the appellants that they have provided assistance and services to M/s CEAT Ltd., and others. The appellants' dispute is on the question as to whether rendering of the services by them to the licencees is in the nature of the management consultancy services. 10. (a) M/s RPG Enterprises Ltd., have rendered management consultancy services to M/s CEAT Ltd., and others and have received licence fees from various limited companies for giving consultancy advice. This is an admitted fact and is also reported in their balance-sheet as income; (b) In the proceedings before the Income Tax Officer, M/s CEAT Ltd., have admitted to have made a payment of Rs 8,22,40,000/- to the appellants as per....
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....d effectively bring down the inventory levels and also streamline the movement of stock between the different geographical locations which helped CEAT Ltd. to satisfy the requirement of each region with a minimum level of inventory. This also resulted into considerable savings to the Company. 3. Strategic Planning Business Evaluation and Planning for long term business strategies. Assisting licensee companies in developing rolling strategic plan. Conducting meets on "KIPs" i.e. Knowledge, Information and Practices, Management of Working Capital, Bench for Global Competitiveness etc. '4. Forex Management: During 1999-2000, RPG Enterprises conducted a detailed study of the Foreign Risk Management of the various companies including CEAT Ltd. It was observed that the Forex Risk Management required precise guidelines for management of the exposure on Forex. In order to help the companies a Forex Management Manual was brought out by RPG Enterprises and was circulated to all the companies including CEAT Ltd. In addition to this, there are regular Forex Advisory Circulars being sent to the ....
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....ompanies the services with a view to improve the structure of their organization to bring about better efficiency. M/s.CEAT Ltd have received advice, consultancy from M/s RPG in the field of organization efficiency, 'Corporate Financing System' and because of modification rectification of the system, their credit rating with banks, financial institutions and other lending agencies has improved and interest cost has come down. M/s CEAT Ltd have admitted that due to the technical assistance and advice of M/s RPG, their Management Information System (MIS) and Inventory Management System have improved and the same has resulted in considerable savings to M/s CEAT. Similarly, M/s CEAT have admitted that they have benefited by advice and technical assistance from M/s RPG relating to development, improvement/ modification of Strategic Planning System Forex Management and HRD and have benefited financially. M/s RPG send them Regular Forex Advisory Circulars also. This clearly shows that M/s RPG's advice, consultancy and assistance are directly in connection with the management of the recipi....
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....he contention of the appellants that the Principle of Mutuality will apply in this case. They have cited the following decisions: (a) Chermsford Club vs CIT, Delhi reported in 2000 (3) SCC 214; (b) Saturday Club Ltd vs A.C. Service Tax reported in 2005 (180) ELT 437; (c) Dalhousie Institute vs A.C. Service Tax reported in 2005 (180) ELT 18. In Chelmsford Club vs CIT, Delhi, the Hon'ble Supreme Court has held in para 14 as under: "From the above extract of the judgment, it is crystal clear that the law recognises the principle of mutuality excluding the levy of income tax from the income of such business to which the above principle is applicable. In the above case, this Court quoted with approval the three conditions stipulated by the Judicial Committee in the case of English & Scottish Jt. Coop. Wholesale Society Ltd. v. CIT (Ag) ((1948) AC 405, 419 : (1948) 2 All ER 395 (PC)) (AC at p. 419) the existence of which establishes the doctrine of mutuality. They are as follows : "(1) the identity of the contributors to the fund and the recipients from the fund, (2) the treatment of the company, though incorporated, as a mere entity for the convenience of the members and po....
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....there is an income. Sales tax is applicable if there is a sale. Service tax is applicable if there is a service. All three will be applicable in a case of transaction between two parties. Therefore, principally there should be existence of two sides/entities for having transaction as against consideration. In a members' club there is no question of two sides. 'Members' and 'club' both are same entity. One may be called as principal when the other may be called as agent, therefore, such transaction in between themselves cannot be recorded as income, sale or service as per applicability of the revenue tax of the country. Hence, I do not find it is prudent to say that members' club is liable to pay service tax in allowing its members to use its space as 'mandap'. We are of the opinion that the Principle of Mutuality and the above referred judgments are not applicable to the facts of the present case because of following reasons: (a) M/s RPG have entered into Non-Exclusive Licensing Agreements with other companies e.g. M/s CEAT Ltd. Both the contracting parties viz M/s RPG and M/s CEAT Ltd etc are two inde....
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....nderstood in the context of the phrase defined. In this connection, they relied on the case laws in the case of Zee Telefilms Ltd vs CCE, Mumbai reported in 2006 (4) STR 349 (Tri) and Hari Prasad Shivshankar Shukla vs A.D. Divelkar reported in AIR 1957 SC (121). The Tribunal in Zee Telefilms Ltd 2006 (4) STR 349 at para 3.1 (a) has held: "Therefore, the definition of 'advertising agency' cannot be read literally and out of context, if done so then every person some way connected with an advertisement will be advertising agency. That cannot be and is not the coverage of the Service Tax envisaged. In the present case, one cannot ignore term being defined i.e., 'advertising agency' and proceed to levy service tax on (i) any commercial concern (ii) providing service connected with making, preparation, display or exhibition of advertisements. If the definition is read in isolation and in an all encompassing manner out of context, then any person/company employing cameraman connected with shooting of advertisement film will become an advertising agency. A caterer supplying tea and biscuits during the production of advertising film will also become a person connec....
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....nce while considering a provision in an excise statute. In the instant case, when the management consultant has been defined in the Finance Act, 1994, there is no scope to look for other statutes. 14. Since the Service Tax law provides for payment of service tax on the gross amount charged, the appellant's plea that the gross amount recovered should be considered as inclusive of service tax is not tenable and is not accepted. The Explanation 2 added to Section 67 of the Finance Act, 1994 with effect from 10.9.2004 cannot be applied retrospectively. The demand in the present case relates to the period from 1998-99 to 2001-2002. 15. The Appellants contention that in view of the solicitor's opinion in 1989, which was not disputed by the Auditors or the Registrar of Companies, they entertained a bona fide belief that they are not liable to service tax, does not appear to be convincing. Bona-fide belief is not blind belief. The ratio of the various case laws cited by the learned Jt C.D.R., as referred to in para 6.4 (iii) above for invoking extended period are rightly applicable to the facts and circumstances of the present case. The a....