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Introduction of new entry and inclusion of certain services in that entry would presuppose that there was no earlier entry covering the said services and accordingly merchant banking and advice on mergers and acquisition can be taxed only under Banking and Financial Services with effect from 16/07/2001 and are not covered under management consultancy service.
Facts
The Appellant provided various financial services viz. advisory services, retainership for providing opinions, advisory for mergers and acquisitions, merchant banking services etc. Their income included fees for these services as well as management fees earned by their subsidiary, fees for underwriting Government securities and other miscellaneous income. The department contended that all services except underwriting services are covered under “management consultancy service”. However it was argued that interalia as regards M&A services the entry of management consultancy should be interpreted in contextual manner and M&A advisory is technical and restrictive and does not relate to running of an organization. Merchant banking services are regulated under SEBI Rules and Regulations and that the services rendered were liable only from August 2001 under the category of “banking and financial services” which was brought into the service tax net from 16/07/2001. In the present case the period involved is April 2000 – December 2001.
Held
The Tribunal relying on the decision of Indian National Shipowners Association [2008-TIOL-633-HC-MUM-ST] wherein the High Court held that introduction of a new entry and inclusion of certain services in that entry would presuppose that there was no earlier entry covering the said services held that the service of banking and financial service was introduced with effect from 16/07/2001 incorporating the various entries viz. merchant banking, mergers and acquisition etc. and thus the services were not liable under management consultancy service prior to the said date. It was noted that the definition of management consultancy remained the same even after introduction of banking and financial service and thus the service was brought to tax only after introduction of the new entry. Further, it was held that the term management consultancy refers to consultancy regarding the affairs of an organisation and does not relate to activities of mergers and acquisition which is highly technical and restrictive term. Accordingly, the demand of fees received in relation to mergers and acquisition, merchant banking and retainership was set aside. As regards fees received by the subsidiary company it was held that the same related to services provided by the subsidiary which was a separate legal entity and cannot be considered as income of the Appellant merely because the income is shown in the consolidated financial statement which is a mere statutory requirement. Further, it was held that underwriting of Government securities was not taxable by virtue of Board Circular No. 126/8/2010 dated 10/08/2010. Further in relation to the miscellaneous income, it was held that the same are in the nature of adjustments of expenses/debt etc. and there is no service involved in these activities. Thus the entire demand was set aside.
