Kotak Securities Ltd vs Commissioner Of Central Excise

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT No. I

Appeal No. ST/332/11

(Arising out of Order-in-Appeal No. MI/AV/64/2011 dated 31 January 2011 passed by Commissioner of Central Excise (Appeals), Mumbai)

For approval and signature:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

Kotak Securities Ltd.

Appellant Vs.

Commissioner of Central Excise Mumbai Respondent

Appearance:

Shri Rohit Jain, Advocate for appellant Shri Harsh Shah, Advocate

Shri S.V. Nair, Supdt. (AR) for respondent

CORAM: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

Date of Hearing: 05.08.2015 Date of Decision: 28.08.2015

ORDER NO

Per: M.V. Ravindran

This appeal is directed against Order-in-Appeal No. MI/AV/64/2011 dated 31 January 2011

2. The relevant facts that arise for consideration are records of the appellant were audited by the department. The audit revealed that the appellant had a research department conducting equity related research and preparing research reports on the financial companies listed on the bourses and the stock market performance of the equity shares of such companies. These research reports are sent only to those clients, Indian and Foreign Institutional institutions and high net-worth investors, who are registered with them. The audit party came to a conclusion that the appellant was engaged in conducting market research of the financials of companies and the services provided by the appellant appeared to be classifiable under Market Research Agency Services as defined under Section 65(69) of the Finance Act, 1994. It was also noticed that the appellant had received an amount from their sister concern as research fees for the period October 1999 to March 2003 and no service tax was discharged. Show cause notice invoking the extended period was issued for demand of tax, interest thereof and for imposition of penalties. The appellant contested the issue on merits as well as on limitation before the adjudicating authority who did not agree with the contentions raised and confirmed the demand with interest and also imposed penalty. The first appellate authority also concurred with the findings of the adjudicating authority and rejected the appeal.

3. Learned Advocate appearing on behalf of the appellant would take us through the entire case regards, show cause notice and the order-in-original as well as the impugned order and submit that the appellant has been registered with the authorities for rendering the services of stock broker and there is no dispute on the demands raised on the appellant. It is his submission that the research division consists of their own employees and they do research on various performance of stock and advise their clients. The consideration received from the clients is in the form of commission, on which service tax liability is discharged. It is his submission that this market research reports as produced by the Research Division of the appellant was shared with their own sister concern i.e. M/s. Kotak Mahindra Capital Company (KMCC); on sharing research report with KMCC, appellant had issued debit notes to KMCC for the cost incurred on the reports. It is his submission that this amount is sought to be taxed under the category of market research. After reading the definition of market research agency service, he submits that the appellant is not engaged in market research of any product or utility or services.

He would submit that the Boards Circular dated 13.10.1998 would be applicable in this case as the said Circular specifically states that market research is undertaken on the requirement of the client, while in the case in hand there is no client, as the appellant is sharing the market research with their own sister concern and the said research report and document is prepared for their own use. He would then submit that the invoice/debit notes raised by the appellant indicate that the appellant had only recovered the proportionate expenses of research department from KMCC. He would submit that when only the costs are shared between the group companies it cannot be considered as the services rendered, is the law which has been settled by the Honble High Court in the case of CST vs. Arvind Mills Ltd. - 2014 (35) STR 496 (Guj.). Alternatively, it is his submission that there is a specific entry for these kind of services rendered in Banking and other financial services, wherein advisory and other auxiliary financial services for discharge of service tax liability. It is his submission that when there is a specific entry in the statute, it cannot be taken out and relegated to common entry i.e.Market Research Agency Services.

He relied upon the judgement of the Tribunal in the case of Dr. Lal Path Lab (P) Ltd. v. CCE 2006 (4) STR 527. It is his further submission that the amounts which are debited to their sister concern KMCC was factually reimbursement of the expenses incurred for conducting the market research. Hence the amount which was debited should be considered as reimbursable expenses and the judgement of the Intercontinental Consultants and Technocrats Pvt. Ltd. V. Union of India & Anr  2012-TIOL-966-HC-DEL-ST will apply and will be levied on such amount.

4. Learned DR submits that in the appellants own case, while disposing of the stay petition, this Bench has recorded the findings which he reiterated and no more submissions are required from him.

5. We find that the issue involved in this case is regarding the service tax liability on aconsideration received by the appellant from their associated company, could be subjected to service tax under the category Market Research Agency Services or otherwise. Both the lower authority have proceeded on the finding that the services are rendered by the appellant to their sister concern.

5.1 We find that it is the case of the appellant that they are sharing the market research undertaken by their research division in respect of shares and the performance thereof and is not the services rendered to their sister concern.

5.2 We find that the appellant relies heavily on their service agreement entered by them with the sister concern KMCC. Our attention was also drawn to the debit notes raised by the appellant in the name of KMCC. On perusal of the impugned order and the adjudicating authoritys order, we find that these documents were not produced before them in order to come to a proper conclusion. The first appellate authority specifically records that the appellant has not produced shred of evidence by way of invoice/credit/debit notes or any agreement towards cost sharing in support of their contentions that costs were being shared. If these are the findings, the documents which are relied upon and the agreement which are produced before us needs to be considered by the first appellate authority in its correct perspective. Since these documents were not produced before the first appellate authority, in our view, the issue needs reconsideration by the first appellate authority afresh.

5.3 Without expressing any opinion on the merits of the case, keeping all the issues open, we set aside the impugned order and remand the matter back to the first appellate authority to reconsider the issue afresh after following the principles of natural justice. The appellant is entitled to rely upon the evidences like agreement, debit notices and any other documents by producing the same before the first appellate authority.

6. The appeal is allowed by way of remand to the first appellate authority.

(Order Pronounced in Court on)

(C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial)

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Appeal No. ST/332/11