Service tax Market research for management of assessee company is not management consultancy Service

CESTAT, NEW DELHI BENCH

BMD (P.) Ltd.

V/s.

Commissioner of Central Excise

STAY ORDER NO. ST/S/456 OF 2012

APPLICATION NO. ST/STAY/989 OF 2012

APPEAL NO. ST/438 OF 2012

APRIL 16, 2012

ORDER

Mathew John, Technical Member

The appellants are manufacturers of Automotive Laminated Fabrics. They had entered into an agreement with Gamma Holding N.V., Netherlands engaging them to provide the following services to the appellants :

(i)  Undertaking area feasibility studies on behalf of BMD on the specified current and future European technical textiles business and marketing requirement outside the field of automotive fabrics.

(ii)  Advising and assisting BMD in identifying potential joint venture and acquisition opportunities in textile fabric business in Europe outside the field of automotive fabrics.

(iii)  Exploring potential opportunities in India for Joint venture with BMD in other products currently under the portfolio of Gamma.”

2. They made payments in pursuance to the above contract to Gamma Holding during the period Jan 2007 to March 2008 but did not pay service tax on such payments. Revenue was of the view that the service received by them were classifiable under services of “Management and Business Consultant” defined in section 65(105)(r) of Finance Act, 1994 and made out a case the appellants should have paid service tax under the provisions of section 66A of the Finance Act, 1994, on such services received and paid for.

3. The Appellants contest that though the agreement provided for taking services under three heads as detailed in para 1 above they have received services only under item (i) and such service is in the nature of service of a Market Research Agency under section 65(105)(y) of the Finance Act, 1994.

4. As per provisions in Taxation of Services (Provided from Outside India and Received in India), Rules 2006 the question whether the service in question is imported is decided with reference to location of the recipient of service for service specified under section 65(105) (r) but is decided with reference to place of performance for service specified at section 65(105)(y). That is to say if the impugned service is classified as Management Consultancy, service tax is payable in the present case but if it is classifiable as service of Market Research Agency then tax is not payable for the reason that the service is performed entirely outside India.

5. The Counsel produced the report given by Gamma Holding for which payments were made. He relies on para 7 in Board’s letter No. B11/1/98-TRU dated 07-10-1998 explaining the scope of the entry for services of Market Research Agency and explains how the service in question fits into the definition of the service at 65(105)(y). He also makes it clear that though there was agreement regarding conducting surveys about possible joint ventures outside India and in India (refer items (ii) and (iii) of para 1) the said terms of the contract were not executed. So he argues that the service is taxable under entry at 65 (105) (y) and there can be no tax liability on the impugned services.

6. The Ld. A.R. on the other hand points out how the contents of the report submitted by the foreign company is suitable for strategic decision regarding products to be manufactured and its marketing and therefore the service fits into the definition of the services of Management Consultant. Further he argues that the services at items (ii) and (iii) of para 1 squarely fall within the scope of definition of Management Consultant Service and that there is no proof that the payments made were not in relation to such activities. So he prays that the appellants should be put to some reasonable terms of pre-deposit for hearing the appeal.

7. We have considered arguments on both sides. Appellant has produced the Report which was the outcome of service provided. Revenue has no proof that service at items (ii) and (iii) of para 1 have been provided by the Gamma Holding except the terms of the contract. There is no service tax to be paid for entering into a contract. Levy arises only when activities are performed. Services as at (i) of para 1 is prima facie fits into the of definition of Market Research. The reason that Market Research itself is needed for management of an organization cannot be reason for classifying the service as Management Consultancy considering the legal position that a service has to be classified under the heading which is more specific. Market Research may help in Management for that reason the activity of Market Research cannot be classified as Management function when both services are separately taxable.

8. Thus prima facie we do not find any merit in the argument of Revenue and the demand is prima facie not maintainable. So we waive the requirement for pre-deposit of dues for admission of appeal and there shall be stay on collection of such dues during the pendency of the appeal.

NF