2019 (6) TMI 1539 - AT - Service Tax

Levy of service tax - advertising services - expenses on behalf of its customers in the nature of travel, lodging, etc. which were later reimbursed to the Appellant on cost to cost basis without adding any mark-up - period from 2004 to 2006 - HELD THAT - The contract executed by the Appellant with its customers specifically state that all out-of-pocket and other commercial expenses shall be reimbursed to the Appellant on actuals. Further, the Revenue has not disputed the fact that such amounts were being received by the Appellant without any mark-up. Reliance placed in the case of the Hon ble Supreme Court in the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT , wherein it has been held that service tax on expenditures incurred by the service provider in the course of providing taxable service is ultra vires Section 67 of the Finance Act and that such expenditure cannot be considered for charging service tax. The Trade Notice relied upon by the Revenue was never incorporated in the Finance Act by way of an amendment. Therefore, in the absence of any statutory backing, the Revenue cannot demand tax relying solely upon a Trade Notice or Circular issued by the Department itself - Demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability of the appellant to discharge service tax on reimbursements received from customers.
2. Validity of relying on Trade Notice for demanding service tax.

Analysis:
1. The case involved the liability of the appellant to pay service tax on reimbursements received from customers for expenses incurred on their behalf. The Department issued a Show Cause Notice proposing recovery of service tax, which was initially dropped by the Adjudicating Authority but later confirmed by the Commissioner (Appeals). The main issue was whether the appellant was liable to discharge service tax on such reimbursements. The contract between the appellant and customers clearly stated that expenses would be reimbursed on actuals without any mark-up. Citing the judgment in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., it was established that service tax on such expenditures is not valid under Section 67 of the Finance Act.

2. The Department relied on Trade Notice No. 1/96-ST to support the demand for service tax. However, the Tribunal noted that this Trade Notice was not incorporated into the Finance Act through an amendment. Therefore, without statutory backing, the Revenue could not demand tax based solely on a Trade Notice or Circular. The Tribunal emphasized that Trade Notices or Circulars can only clarify existing statutory provisions and cannot expand the scope of statutory provisions or legislative intent. As a result, the Trade Notice could not uphold the demand for service tax against the appellant.

In conclusion, the Tribunal allowed the appeal filed by the appellant, as it was established that the appellant was not liable to discharge service tax on reimbursements received from customers. The decision was made based on the merits of the case, and the issue of limitation was not addressed. The judgment highlighted the importance of statutory backing for tax demands and clarified the limited scope of Trade Notices or Circulars in interpreting legislative provisions.