Classification Dispute in Services received by Mahindra & Mahindra from Overseas Legal Consultancy: CESTAT directs AA to reconsider Matter Properly [Read Order]

The Bangalore Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) directed the Original Adjudicating Authority to thoroughly re-examine the classification of services received from overseas legal consultancy firms by the Mahindra & Mahindra.

Mahindra & Mahindra Ltd., the appellant is engaged in tractor manufacturing under Chapter 87 of the Central Excise Tariff Act, 1985. During the financial year 2006-07, the appellant received legal consultancy services from overseas entities.

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As per the provisions of the Finance Act, 1994, under the Reverse Charge Mechanism ( RCM ), the appellant was liable to pay service tax for services received from service providers residing abroad.

The Department issued a show-cause notice demanding Rs. 4,91,055 in service tax and confirmed in an adjudication order dated September 30, 2012. In addition to the tax amount, interest and penalties were imposed under Sections 77 and 78 of the Finance Act, 1994.

The appellant appealed this decision but the Commissioner (Appeals) rejected the appeal upholding the original order. The aggrieved appellant challenged the service tax demand order before the Mumbai Bench of CESTAT.

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The appellant's counsel argued that the services received from a legal consultancy firm located abroad should not have been classified as “Business Auxiliary Service” under which the service tax demand was confirmed.

The appellant’s counsel argued that legal consultancy services were brought into the tax net only from September 1, 2009, under Section 65(105)(zzzzm) of the Finance Act. Therefore, for services received in 2006-07, no service tax liability should arise.

On perusal of records, the two-member bench comprising S.K. Mohanty ( Judicial Member ) and  M.M. Parthiban ( Technical Member ) observed that the nature of the services received by the appellant and the timing of the imposition of service tax under the Finance Act had not been adequately considered by the lower authorities.

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The tribunal found that this aspect required further examination to determine whether the appellant was indeed liable to pay service tax for the services received in 2006-07 under the Reverse Charge Mechanism.

Further, the tribunal found that both the adjudicating authority and the Commissioner (Appeals) had failed to properly consider the appellant's plea regarding the timing of the inclusion of legal consultancy services in the service tax net.

Therefore, the tribunal set aside the impugned order and remanded the case to the original adjudicating authority. The authority was instructed to conduct a de novo hearing, specifically to clarify the exact nature of services received by the appellant and to determine the appropriate classification of these services to apply service tax.

To Read the full text of the Order CLICK HERE

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