2008 (9) TMI 123 - AT - Service Tax

Includibility of reimbursements payment made by service provider on behalf of service recipient, in course of rendering service - reimbursements are actually not towards the service rendered but they are only towards other expenditure incurred on behalf of the client by the service provider - Normally, the service provider incurs these expenditures in the interest of quicker service therefore, reimbursements cannot be subjected to Service tax and not includible in taxable value

Summary

Issues:
- Whether reimbursements can be subjected to Service tax?
- Whether the appellants had suppressed the value of taxable service to evade Service Tax?
- Whether the longer period can be invoked for demand of Service Tax?
- Whether the appellants are liable to pay Service tax on reimbursements made by them?
- Whether the Show Cause Notice wrongly demanded Service Tax from other proprietary concerns?

Analysis:

1. Reimbursements and Service Tax Liability:
The appeal challenged an Order-in-Original alleging that the appellants suppressed the value of taxable services and evaded Service Tax. The Tribunal examined the nature of reimbursements in the context of Service Tax liability. It was clarified that reimbursements are not for the services rendered but for other expenditures incurred on behalf of the client by the service provider. The Tribunal emphasized that reimbursements are not subject to Service Tax, as they are not part of the gross amount received for services rendered. Various Tribunal decisions were cited to support this position.

2. Suppression of Facts and Longer Period Invocation:
The Tribunal found that the Show Cause Notice was based on the balance sheet and regular books of accounts of the appellants. Since the appellants had been regularly paying Service tax and filing returns, there was no evidence of intentional suppression of facts to evade duty. Consequently, the Tribunal held that the longer period for demand of Service Tax could not be invoked in this case.

3. Applicability of Case Laws and Relief Granted:
The appellants relied on several case laws to argue against the demand for Service Tax on reimbursements. The Tribunal acknowledged the relevance of these case laws and allowed the appeal with consequential relief. It was observed that the Show Cause Notice incorrectly demanded Service Tax from other proprietary concerns not engaged in management consultancy work, emphasizing the distinction between reimbursements and taxable services.

In conclusion, the Tribunal ruled in favor of the appellants, emphasizing that reimbursements are not liable to Service Tax and that there was no evidence of intentional suppression of facts. The appeal was allowed, providing relief to the appellants based on the legal principles surrounding reimbursements and Service Tax liability.