2007 (4) TMI 13 - AT - Service Tax

Valuation(Service tax) Appellant contended that the taxable service is calculated after OPE deducted from gross service charges Appellant not provide substantial evidence in support of contention and accordingly extended period has rightly been invoked

Summary

Issues Involved:
1. Disallowance of abatement of traveling, lodging, and boarding expenses on account of insufficient documentary evidence.
2. Liability to pay service tax on miscellaneous expenses incurred on items other than traveling, lodging, and boarding, described as infrastructural and establishment expenses.
3. Liability to service tax in respect of payments received in foreign exchange.
4. Liability to service tax on expenses incurred in procuring core documents and borrowing other services from Head Office and other Mckinsey entities for which no recovery was made from the client, and service tax has been charged as an agent of the principal.
5. Liability to service tax on expenses incurred on core documents and borrowed service charges for which recovery was made from the client.
6. Limitation.

Detailed Analysis:

1. Disallowance of Abatement of Traveling, Lodging, and Boarding Expenses:
The appellant claimed abatement for traveling, lodging, and boarding expenses, which were denied by the adjudicating authority due to insufficient documentary evidence. The appellant argued that discrepancies in sample vouchers should not lead to the disallowance of the entire claim. The Tribunal found merit in the appellant's contention and remanded the matter back to the adjudicating authority to examine the documents provided and allow the claim for amounts supported by vouchers.

2. Liability to Pay Service Tax on Miscellaneous Expenses:
The adjudicating authority disallowed expenses related to telephone charges, courier charges, office supplies, etc., considering them as infrastructural and establishment expenses. The appellant argued that these expenses were incurred on behalf of the client and should be eligible for abatement. The Tribunal remanded the issue back to the adjudicating authority to determine whether these expenses were the client's liability and decide accordingly.

3. Liability to Service Tax in Respect of Payments Received in Foreign Exchange:
The appellant claimed exemption under Notification No. 2/99-ST for payments received in foreign exchange. The adjudicating authority denied the exemption, stating that management consultancy services were not covered under the notification and there was no proof of non-repatriation of foreign exchange. The Tribunal found that management consultancy services were taxable and the appellant was entitled to the exemption. The matter was remanded back to the adjudicating authority to verify the Chartered Accountant's certificate regarding non-repatriation of foreign exchange.

4. Liability to Service Tax on Expenses Incurred in Procuring Core Documents and Borrowing Other Services:
The adjudicating authority held that the appellant, acting as an agent, was liable to pay service tax on charges paid to its Head Office and other Mckinsey entities. The Tribunal found that an agent cannot be charged service tax for services received from its principal. The demand of Rs. 4,46,37,777/- was set aside as the appellant was not rendering any service but receiving information and services from its principal.

5. Liability to Service Tax on Expenses Incurred on Core Documents and Borrowed Service Charges for which Recovery was Made from the Client:
The appellant argued that these expenses were in the nature of OPE and should be eligible for abatement. The Tribunal noted that the value of taxable service is the gross amount charged by the management consultant, and the law does not provide for any abatement. The Tribunal upheld the service tax demand of Rs. 1,09,81,778/- as the charges recovered from the client were not eligible for abatement.

6. Limitation:
The Tribunal found that the extended period of five years for demand of service tax was rightly invoked as the appellant did not disclose the recovery of extra amounts from clients as OPE in their returns. The Tribunal held that the appellant was obligated to declare the total gross amount received and claim abatement with supporting documents. The penalties were to be re-determined, considering the total service tax held liable.

Conclusion:
The appeal was disposed of with directions to remand certain issues back to the adjudicating authority for reconsideration and verification of documents. The demand of Rs. 4,46,37,777/- was set aside, while the demand of Rs. 1,09,81,778/- was upheld. The penalties were to be re-determined based on the revised service tax liability.