2016 (6) TMI 1177 - AT - Service Tax

Business Auxiliary Services - whether the appellant is liable to pay service tax on the turnover achieved by Tiems Telecom (P) Ltd. (a company) having separate Service Tax registration number? - Held that - appellant is not liable to tax for such turnover achieved by the Pvt. Ltd. Company, M/s Tiems Telecom Pvt. Ltd. on and before 14/2/08. Whether the appellant is entitled to deduction for reimbursement of certain expenses from the principal under the provisions of Section 67 of the FA? - Held that - Section 67 of the FA, 1994 provides that whatever is received by the service provider in his capacity as pure agent, such amounts shall not form part of the gross turnover liable to tax - further proper findings have not been recorded as to the exact nature of receipts and as to deductibility - matter on remand. Penalties u/s 76 and 78 - Held that - it is not a case of deliberate default, as the appellants have paid substantially the amount of taxes and there appears to be interpretational issue in regard to gross amount taxable - also, there was a dispute amount the Directors of the Pvt. Ltd. company, which finally lead to the closure of the business in February, 2008 - penalties set aside. Appeal allowed by way of remand.

Summary

Issues:
1. Liability of the appellant for service tax on the turnover achieved by a Pvt. Ltd. Company.
2. Entitlement of the appellant to deduction for reimbursement of certain expenses from the principal under Section 67 of the Finance Act.

Analysis:
1. The appellant, a service provider under "Business Auxiliary Services," appealed against an order alleging short payment of service tax based on turnover figures from a Pvt. Ltd. Company, Tiems Telecom. The issue was whether the appellant is liable for service tax on the turnover achieved by the company. The Tribunal held that the appellant is not liable for tax on the turnover attributable to the Pvt. Ltd. Company before 14/2/08. The Tribunal directed a re-calculation of tax liability and allowed credit of any challan produced later. The appellant was given an opportunity to appear before the adjudicating authority with relevant documents.

2. The second issue revolved around the appellant's entitlement to deduction for certain payments received as reimbursement from the principal under Section 67 of the Finance Act. The Tribunal noted that proper findings were lacking on the nature of receipts and deductibility. The appellant claimed that amounts labeled as "reimbursement" in the statement of account were not subject to service tax. The Tribunal analyzed the Tele Shop Agreement between the appellant and the principal company, which clarified that no reimbursements were to be made. The Tribunal allowed the appeal by way of remand to the adjudicating authority, directing that the appellant is entitled to deduction for expenses incurred on behalf of the principal as a pure agent.

3. Regarding penalties under Sections 76 and 78, the Tribunal found no deliberate default by the appellant, considering the interpretational issue in determining the taxable amount. Additionally, a dispute among the directors of the Pvt. Ltd. Company led to business closure in February 2008. Consequently, the penalties under Sections 76 and 78 were set aside. The Tribunal emphasized that the appellant had paid a substantial amount of taxes, indicating a lack of deliberate default.

This judgment clarifies the appellant's tax liability, entitlement to deductions for reimbursement, and the rationale behind setting aside penalties under Sections 76 and 78 based on the specific circumstances of the case.