CESTAT-Mumbai : Whether the demand of Service tax raised in the Show Cause is sustainable under the category of 'Management Consultancy Services'

CESTAT, Mumbai Bench

Commissioner of Service Tax, Mumbai-II v. UPS Worldwide Logistics India (P.) Ltd.

Section 65(65)

Ramesh Nair, Judicial Member And Raju, Technical Member

Order No. A/89364/17/STBÂ

Appeal No. ST/86759/13/ST/CO/91158/2013

August 30, 2017

ORDER

Ramesh Nair, Judicial Member – The fact of the case is that the respondent is rendering service of transportation and distribution, warehouse operations, logistics. Revenue contended that these services fall under the category of Management Consultancy services accordingly the adjudicating authority confirmed the demand. Being aggrieved by the order-in-original, the respondent filed appeal before the Commissioner (Appeals), who allowed the appeal of the respondent. Being aggrieved by the impugned order, the Revenue is before us.

2. Shri B. Kumar Iyer Ld. Supdt. (AR.) appearing on behalf of the Revenue reiterating the grounds of appeal submits that the services provided by the appellant are classifiable under head of Management Consultancy Service. The appellant on their own obtained the service tax registration under Management and Consultancy Services on 3.5.1999. They also paid service tax for the half year ending September 1999 under the above said category and in subsequent return the respondent did not pay the service tax. He submits that the respondent shown in their balance sheet, receipt of management fees which is percentage of transportation and warehousing service charges therefore the services provided by the respondent is Management Consultancy Service and therefore liable for service tax.

3. Shri Julpesh Vora, Ld. Chartered Accountant appearing on behalf of the respondents, at the outset submits that the respondents are providing their independent service to the various clients which includes transportation, warehousing, logistics etc. which is not a service of Management Consultancy. The respondent is not concerned about the management of the various clients therefore their services do not fall under the Management Consultancy Service.

4. We have carefully considered the submissions made by both the sides. We find that the Revenue has contended that the service of warehousing transportation logistic etc. provided by the respondent fall under the category of Management Consultancy Services. The Management Consultancy Services defined as under:

“any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organization in any manner and includes any person who renders any advice, consultancy or technical assistance, relating to conceptualizing, devising, development, modification, rectification or upgradation of any working system of any organization”.

From the plain reading of the above definition it can be seen that under the service of Management Consultancy Service the service provider provides the service in connection with the management of any organization. In the present case the respondent has no connection with the management of the organization. They are providing service of warehousing, transportation, logistics etc. which are independent services provided by the respondent to various clients and not service of management of the organization their clients. It is absolutely clear that the services provided by the appellant do not fall under the category of management consultancy services. The Ld. Commissioner (Appeals) has given elaborated finding in this regard which is reproduced below:

‘9. I have carefully gone through the records of this appeal. The appellants’ written submissions made in their appeal memorandum as well as oral submissions made in course of the personal hearing held on 19.12.2012 and the Adjudicating Authority’s findings recorded in the impugned order have been duly considered by me. The issues to be decided in the subject appeals are:â€”

(1) Whether the demand of Service tax raised in the Show Cause is sustainable under the category of ‘Management Consultancy Services’; and

(2) Whether penalty under Section 76 of the Finance Act, 1994 can be enhanced as pleaded by the department in their appeal.

10. On perusal of the appeal of the Appellant No.1.1 find that the said demand was confirmed by the lower authority mainly on the ground that:â€”

the Appellant No.1 had themselves got registered with Service Tax and had charged/collected paid the Service tax under the said category of the months of May and June 2009.

the fact of rendering defined taxable Management Consultancy services and payment of service tax thereon had not been disputed or questioned by Appellant No.1 throughout the adjudication proceedings;

the services rendered by the Appellant No.1 during the material time correctly attracted Service tax under the main definition and inclusive definition of Management Consultancy services; and

the financial-statements of the Appellant No.1, negate their pleadings that they did not provide Management Consultancy Services within the meaning and comprehension of the main part of the definition of the Management Consultant as existed during the material time correctly.

11. It may be seen that ‘Management Consultancy Services’ was brought under the Service tax net with effect from 16 October 1998. During the relevant period, as per section 65(65) of the Finance Act, 1994, the term “management consultant” was defined as under:â€”

The “taxable service” means the service provided to a client by a ‘management consultant’ in connection with the management of any organization in any manner.

12. The period involved in the instant case is from April 1999 to Sept. 2000. The Appellant No.1 has contended that they had provided logistics services which included warehousing, dispatch and transportation of goods belonging to their clients. The activities performed were receipt of goods at the pre-decided facility as per the manifest provided by the client, storage of goods in the facility/warehouse, dispatch of goods as per the instruction of the clients, carried out by following the procedures contained in the operations manual provided by each client and making suitable arrangement for transportation and that the services provided by them were in the nature of extending logistical support to its clients and executing the movement of goods (inward/outward) from the facility as per the client’s instructions.

13. I find that that the Adjudicating Authority has observed in the impugned order that the Appellant No.1 have derived their income under the head; Revenue from transportation and distribution & Revenue from warehouse operations, logistics/management charges and consultancy charges as per Schedule to financial statements for the year ending 31.3.2000 and 31.3.2001. But I do not find any documentary evidence in the records placed before me which can show that the Appellants had ever provided any service, either directly or indirectly, in connection with the management of their clients’ organization in any manner or having rendered any advice, consultancy or technical assistance, relating to conceptualizing, devising, development modification, rectification or upgradation of any working system of any organization of their clients. Therefore, it would be very difficult accept the proposition that the Appellants’ activities of providing logistics services, which included warehousing, dispatch and transportation of goods belonging to their clients, could be categorized as taxable service of the category of ‘management consultant’ as defined under erstwhile Section 65 (65) of the Finance Act, 1994. The Appellants have claimed that their activities were carried out by following the procedures contained in the operations manual provided by each client. The activities performed were receipt of goods at the pre-decided facility as per the manifest provided by the client. They had stored the goods in the facility/warehouse, dispatched the goods as per the instruction of the clients and made suitable arrangements for transportation of such goods. Thus, the services rendered by them were in the nature of extending logistical support to its clients and executing the movement of goods (inward/outward) from their facility as per the instructions of their client and the same could not be implied to be involved in contributing to improvement of the working system of their clients since they had followed the instructions from their clients.

14. I, therefore, find that the activities performed by the Appellants were in the nature of execution of work undertaken by them in accordance with the requirements of their clients and not of rendering any advice or give any consultancy or technical assistance, relating to conceptualizing, devising, development modification, certification or upgradation of any working system of any organization of their clients. To levy service tax under ‘Management Consultancy Services’ the services have to conform to the activities within the purview of the definition of Management Consultancy Services as defined under Section 65(65) of the Finance Act, which is not so in the instant case.

15. The Hon’ble Supreme Court in Commissioner v. Basti Sugar Mills Co. Ltd. – 2012 (25) STR J154 (S.C.)] have observed that-

“The advisory service of consultant is necessary for taxability. Appellant being in- charge of operation of factory was performing management functions. The activity was not falling within the scope of taxable service”.

By placing reliance on the aforesaid decision, I hold that the services rendered by the Appellant No.1 during the period April 1999 to September 2000 do not fall under the category of ‘Management Consultancy Services’ in terms of the definition under Section 65(65) of the Finance Act, 1994. Hence, the demand of service tax proposed under the SCN impugned before the Respondent is held not sustainable in law. When the demand of Service Tax, itself, is found not sustainable, no question arises for recovery of any interest thereon or for imposition of penalty upon the Appellant No.1.

16. In view of the foregoing, I set aside the impugned order. Accordingly, the appeal of Appellant No.1 is allowed with all its consequential relief, if any, as per law to the Appellants No.1.

17. I do not find any merit and substance in the Department’s Appeal for praying enhancement of penalty. Hence, the Appeal No. 6/R/2010, filed by the Department merits for rejection as the same is found not maintainable. I accordingly reject the Appeal filed by the Appellant No.2.

18. the subject appeals, filed by the Appellant No.1 and Appellant No.2 are disposed of in above terms.’

FromÂ the perusal of the above finding it can be seen that the services provided by the respondent do not fall under the category of Management Consultancy Services, accordingly the demand was rightly set aside by the Commissioner. We, therefore uphold the impugned order and dismiss the appeal filed by the Revenue. Cross-objection also stands disposed of.

[Citation :Â 2017-Taxcaselaw-95-CESTAT-Mumbai-GST]