CESTAT upholds Service Tax Demand on TCS [Read Order]

TCS - Taxscan

The CESTAT, in Tata Consultancy Services v. CST Delhi upheld the Service Tax demand on Tata Consultancy Services ( TCS ).

In the instant case, the appellant is engaged in activities relating to information technology. The instant case consists of three issues. The First issue was that TCS had been running a course through it’s own centers and other centers affiliated to it under a franchise agreement. The students undergoing these course at affiliated centers pay fees directly to the appellant. Out of the said amount, 75% is retained by the appellant and rest is paid to the centers. The revenue held that the appellant is liable to fee service tax of the 25% of the fee retained under Section 65(47) of the Finance Act,1994. Moving on to the second issue, upon entering into an agreement with department of science and technology, the appellant (TCS) carried out several facility management services. The revenue was of the view that the appellant was liable to pay service tax under the category of management consultancy services under Section 65(65) of the act. The third issue was that, upon entering agreements with M/s Hindustan Aeronautics Limited and M/s Food Corporation of India, appellant (TCS) carried out several activities including application of data management including several back end activities, supporting manpower recruitment activity of the client. Revenue held that such activities were covered under the definition of Manpower Recruitment and Supply Agency service under section 65(68) of the act.

The Tribunal decided the three issues one by one. With regard to the first issue relating to franchisee agreement, an issue already decided against the case of assessee in CMC Ltd. v. Commissioner Hyderabad. The Adjudicating authority had observed that the value retained by the appellant had escaped service tax. CESTAT held that appellant is liable to make payment of service tax, but exempted the payment of penalty as ordered, taking recourse to section 80 of the act.

With regard to the second part of service tax, management consultancy service. CESTAT relied on the various statutory definition of the term.  It elaborately considered the latest definition of the term, which consists of two parts i.e, any service that directly or indirectly connects with management of the organization and any advice or consultancy. CESTAT held that the appellant had performed technical operation of computer systems and such activities are definitely covered under the term.

Regarding the levy of service tax under ‘manpower recruitment of supply agency service’, the appellant had carried out various backend activities. CESTAT opined that the definition under Section 65(105)(k) would cover any service rendered to any person in relation to recruitment or supply of manpower.

The Tribunal held that “we uphold the levy of service tax along with interest as above” but levy of penalty is set aside.

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