2010 (12) TMI 410 - AT - Service Tax

Valuation - Reimbursement of expenditure - charges for infrastructure i.e. godown rent, depreciation, pest control, fire extinguisher, internet, house keeping and staff welfare, telephone expenses, courier expenses, tax, electricity including generator expenses, samples and promotion materials handling charges, commission paid to bank, renewal of licences, stationery remuneration paid to staff and loading and unloading expenses were subject matter of consideration -  The basic principle that service tax being destination based consumption tax, till the service reaches its destination, that contributes to the proposition that all expenses incurred till that point and time become essential consideration of cost of service - Agreement of parties in respect of modality of payment of valuable consideration towards service provided does not matter for Revenue - Legislature accordingly intend that the gross value of the service shall be the measure of value for taxation whether paid as consideration directly or by reimbursement of expenses relating to providing of taxable service - There is no specific deduction allowed under statutory provisions to diminish the value of taxable consideration of taxable service, in absence of such provision in law, learned Commissioner (Appeals) committed error of law to exclude the expenses reimbursed by the service recipient to service provider from the purview of taxation.

Summary

Issues:
Revenue's appeal against the order holding that expenses reimbursed by the respondent do not form part of the gross value of taxable service.

Analysis:
The Revenue contended that essential expenses reimbursed to the service provider should be included in the gross value of taxable service to avoid tax liability. They argued that such expenses, indispensable for providing the service, contribute to the value of the service and cannot be ignored. Referring to a Division Bench decision, the Revenue sought to reverse the order passed by the Commissioner, emphasizing that certain expenditures are inextricably connected with the service provided and should be considered in the taxable value.

Upon review, the Tribunal found that the Commissioner had excluded various expenses from the taxable value, relying on a Single Member Bench decision and disregarding the Division Bench decision cited by the Revenue. The Tribunal noted that the Apex Court had clarified that service tax is a destination-based consumption tax, and all expenses incurred till the service reaches its destination are essential considerations in determining the cost of service. The Tribunal emphasized that the mode of payment agreed upon by the parties does not affect the tax liability, as the gross value of the service should encompass the entire cost of service.

Citing previous judgments, the Tribunal reiterated that service tax is a VAT based on value addition, and the taxable event occurs each time a service is rendered. Therefore, the Tribunal concluded that the expenses reimbursed by the service recipient should be included in the gross value of taxable service. They agreed with the Revenue's argument and decided to allow the appeal, setting aside the Commissioner's order and restoring the original order.

In summary, the Tribunal held that essential expenses reimbursed for providing taxable services should be considered in the gross value of taxable service for taxation purposes. The decision emphasized the destination-based consumption tax nature of service tax and the inclusion of all incurred expenses in determining the cost of service. The judgment aligned with the Revenue's argument and overturned the Commissioner's order, reinstating the original order.