ST - MD of appellant Co also performed job of MD of another Co by devoting 20% of time and for which he was compensated - If at all any advisory activity was undertaken, demand for ST can be made only on him and not on company: CESTAT
By TIOL News Service
MUMBAI, FEB 22, 2013: THE appellant had employed Shri XXX as a Managing Director (MD). Shri XXX was also employed as MD of M/s Brembo Brakes India Pvt. Ltd. Shri XXX was required to devote 20% of his time to the work of M/s Brembo Brakes India Ltd. and for the remaining 80% of the time he was required to work for the appellants. M/s Brembo Brakes India Ltd. compensated Shri XXX for his work as MD and remuneration of Shri XXX was routed through the appellant and the payment received was credited to the account of Shri XXX without retaining any part thereof.
This flow of money was detected by the department and a view was taken that the appellant rendered Management & Consultancy Services to M/s Brembo Brakes India Ltd. by lending the services of Shri XXX .
A demand notice was served for recovery of Service Tax of Rs.6,18,587/- and the Additional Commissioner also devoted his time for confirming the demand and imposing penalty and interest.
The Commissioner(A) too devoted his time to uphold the order and so the appellant had to devote his time in pursuing his appeal before the CESTAT.
The appellant submitted that they have not rendered any Management Consultancy Services to M/s Brembo Brakes India Ltd .; their MD was working in the same capacity on a part time basis for M/s Brembo Brakes India Ltd. and he was required to be compensated; which compensation was routed through the appellant and on receipt of the same, they credited the entire amount to the account of the MD. Inasmuch as this activity of settlement of management staff does not constitute Management Consultancy Services and, therefore, they are not liable to any Service Tax, submitted the appellant.
The Revenue representative devoted his time reiterating the findings of the lower authorities and also relied on the Board Circular no. 115/9/2009-ST dated 31.07.2009, paragraph 2(ii) of the same.
The Bench observed that the issue lay in a narrow compass and, therefore, after dispensing with the requirement of pre-deposit, took up the appeal itself for consideration and disposal.
The CESTAT held -
“5.1 From the records of the case, it is seen that the MD of the appellant company also performed the job of MD of M/s Brembo Brakes India Ltd. for which he was compensated. If at all, any advisory activity was undertaken by the said person, the demand for Service Tax can be made only on him and not on the appellant. Further, there is no evidence on record to show that the MD of the appellant firm rendered any consultancy/advisory services. He actually functioned as the MD of the other company also, therefore, the remuneration received by him through the appellant company does not come under the category of ‘Management Consultancy Services' in terms of the Board's Circular cited above.”
In fine, the appeal was allowed.
In passing: The Pareto principle (also known as the 80-20 rule , the law of the vital few, and the principle of factor sparsity ) states that, for many events, roughly 80% of the effects come from 20% of the causes. It is a common rule of thumb in business; e.g., "80% of your sales come from 20% of your clients".
Business-management consultant Joseph M Juran suggested the principle and named it after Italian economist Vilfredo Pareto , who observed in 1906 that 80% of the land in Italy was owned by 20% of the population; he developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas.
(See 2013-TIOL-350-CESTAT-MUM)
