MCKINSEYCOMPANY, INC Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) With a view to appreciate the submissions made across the bar, it will be necessary to make a note of the factual controversy. According to the case of the appellant, it is a branch in India of a company 'McKinsey and Company Inc, USA'. The appellant is engaged in providing management consultancy services in India and it is registered as a management consultant for the purposes of service tax.

(2.) On 19th March 2002, a show cause notice was issued to the appellant alleging that the appellant had made contravention of the provisions of section 68 of Chapter V of the Finance Act,1994 read with Rule 8 of the Service Tax Rules. The breach alleged was in respect of six half yearly returns for the periods ending March 1999, Sept. 1999, March 2000, Sept. 2000, March 2001 and Sept. 2001. A demand was made for interest and penalty.

(3.) Generally, before commencing assignment, the appellant has a written understanding with its clients specifying the nature of services and the consultancy fees for the same. Agreement typically narrates the nature of expenses that may be incurred incidental or ancillary to providing consultancy services that would be claimed as reimbursement from the clients. According to the case of the appellant, such agreements do not necessarily give an extensive list of all expenses which are required to be reimbursed by the clients. The expenses are in the nature of the expenses incurred on travel, lodging and boarding, courier, stationery, telephone and other communications. These expenses are referred as Out of Pocket Expenses (OPE). According to the case of the revenue, the appellant could not provide satisfactory explanation and supportive documents for OPE of an amount of Rs. 35,68,38,421/- out of total sum of Rs. 40,82,55,661/- for the period between Oct. 1998 to March 200 Accordingly, a show cause notice containing a demand of service tax amounting to Rs. 1,78,41,921/- in respect of inadmissible OPE was issued. These expenses mainly related to travel, lodging and boarding expenses except for a sum of Rs. 6,32,92,925.00 which amount was disallowed as being expenses related to infrastructure and service charges unrelated to traveling,lodging and boarding.