In the case of IBM India Private Limited vs The Commissioner of Central Excise, the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) Bangalore, ruled in favor of the appellant, determining that Facility Management, Maintenance, and Consulting Services are not subject to service tax under the Management Consultancy classification.
M/s. IBM India Private Limited, located in Bangalore, specializes in software development for both domestic and international clients. The company also offers various services, including Facility Management Services, Maintenance Services, and Consulting Services.
The Directorate General of Central Excise Intelligence (DGCEI) conducted a detailed investigation and alleged that M/s. IBM India had provided services classified as ‘Management Consultancy Service’ under Section 65(65) of the Finance Act, 1994, taxable under Section 65(105)(r) of the Finance Act. Consequently, a show-cause notice No. 62/2006-07 was issued on October 21, 2006, demanding a duty amount of Rs. 72, 25, 49,033 for the period from September 2003 to April 2006.
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Upon reviewing twelve contract agreements between the appellant and their clients, the Commissioner determined that the appellant was engaged in managing the information technology infrastructure and computer systems of their clients. These activities, deemed peripheral, were considered core to managing their clients’ offices. Thus, the Commissioner classified these services as ‘Management Consultancy Service’ rather than ‘Business Auxiliary Service,’ as claimed by the appellant. As a result, the Commissioner confirmed the service tax demand of Rs. 72, 25, 49,033, along with interest and penalties under Sections 76 and 78, in Order No. 17/2008 dated December 31, 2008.
Mr. Harish Bindumadhavan, representing M/s. IBM India (P) Ltd., argued that the Department misinterpreted the IT Outsourcing Agreement with M/s. Bharti Tele-Ventures Ltd. dated March 26, 2004, among others. The contracts, he contended, were analyzed in a fragmented manner rather than holistically. He asserted that IT and software/hardware engineering consulting work was excluded from the ‘consulting engineer’ category and therefore should not be subjected to tax under ‘Management Consultancy.’ The appellant’s services, he claimed, fell under ‘Support Services of Business or Commerce’ as of May 1, 2006, rather than under ‘Management Consultancy Service’ (MCS).
Further clarified that computer-enabled services, including data processing and computer facility management, were exempt from service tax. He emphasized that the appellant’s services encompassed broader responsibilities than mere technical assistance or consultancy and thus should not be equated with ‘Management Consultancy.’
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The two member bench of the tribunal comprising D.M Misra ( Judicial member) and R. Bhagya Devi ( Technical member) noted that the services provided by M/s. IBM India Pvt. Ltd., including Availability Management, Batch Management, Capacity Planning, and other similar services, were indeed part of a broader suite of IT services. The classification of these services under ‘Management Consultancy Service’ was upheld as they were integral to managing IT infrastructure, contrary to the appellant’s claim of exemption under IT services.
The bench found no basis to challenge the demand beyond the normal period, as the Revenue was aware of the appellant’s activities based on prior show-cause notices and ongoing payments under ‘Management Consultancy Service’ with exemptions only for ERP software packages.
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