K.K. Agarwal, Member (T) - (1.) THE appellant M/s Mckinsey India, a branch of Mckinsey, U.S.A., is engaged in providing management consultancy services to its various clients in India. THEy have entered into agreement with clients, prior to commencing any consignments/engagements for provision of detailed strategic consulting service and for all the project undertaken by them during the period October 1998 to March 2003 numerous expenses including Out of Pocket Expenses (OPE) for each project were incurred by them and the same were recovered from the clients.
(2.) Since value of taxable services in relation to the service provided by management consultant to the clients is gross amount charged by such consultant from the clients for services rendered in connection with the management of any organization in any manner, it was felt that the entire amount was chargeable to service tax. However, certain OPE were considered as not liable to service tax i.e. one relating to traveling, boarding and lodging expenses, provided the assessee substantiate the same with the help of documentary evidence. As a result of audit undertaken in 2002 for the period April 2000 to September 2000 and subsequent investigations, assessee could not provide satisfactory explanation and supportive documents for OPE amount (sic) 35,68,38,421/- out of total sum of Rs. 40,82,55,661/- for the period October 1998 to March 2003 and accordingly a show cause notice was issued seeking to demand service tax amounting to Rs. 1,78,41,921/- in respect of such inadmissible OPE. These expenses mainly related to traveling, lodging and boarding expenses except for a sum of Rs. 6,32,92,925/-, which was disallowed as being expenses relating to infrastructure and establishment charges unrelated to traveling, lodging and boarding.
(3.) THIS scrutiny further revealed that for rendering the management consultancy services, the assessee has obtained certain core documents from its Head Office and borrowed services from its subsidiary as well as its Head Office for which a sum of Rs. 89,27,55,541/- was paid by them to their Head Office and subsidiaries of Mckinsey. It was considered that these services were critical to the job undertaken by the assessee and were vital and pivotal to carry out assignment and therefore these core document charges and borrowed service charges and market research charges incurred by the assessee were liable to service tax and since the applicant was subsidiary of the principal it has acted as agent in providing these paid services and therefore he was liable to pay service tax as agent and accordingly a demand of Rs. 4,46,37,777/- was also raised.;