2016 (5) TMI 374 - AT - Service Tax

Demand of Service Tax - Port services, Cargo Handling, Steamer Agents, Business Auxiliary Services and renting of immovable property services - collected charges under various heads as reimbursement charges - Held that - on perusal of sample documented invoice, it is found that respondent had issued invoices indicating herein that particular invoice is for reimbursement of an amount paid to Mormugao Port Trust towards Cargo related charges and annexing invoice which is in respondent s name issued by Mormugao Port Trust. Various documents indicate procedure followed by the respondent i.e. pay the amount to service provider and claim the same as reimbursement from their client. Hence, this activity of the respondent is covered as an activity of a pure agent. By following the decision of Hon ble High Court of Delhi in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. Vs. Union of India 2012 (12) TMI 150 - DELHI HIGH COURT , the provision of Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 which would mean any amount of reimbursement of the expenses cannot be included for discharge of Service Tax liability. - Decided against the revenue

Issues Involved:

1. Whether the amounts received by the respondent as reimbursement charges are liable for Service Tax.
2. Whether the adjudicating authority erred in dropping the proceedings initiated by the show-cause notice.
3. Whether the adjudicating authority correctly determined the nature of the expenses and the contractual relationship between the respondent and their principals.
4. Whether the adjudicating authority correctly applied the principles of "pure agent" as per Service Tax regulations.
5. Whether the adjudicating authority's decision on the ground of limitation was appropriate.

Detailed Analysis:

1. Reimbursement Charges and Service Tax Liability:
The core issue revolves around whether the amounts received by the respondent as reimbursement charges should be considered for Service Tax. The Revenue argued that these charges, collected under various heads, should be included in the gross amount charged for services and subjected to Service Tax. The adjudicating authority, however, concluded that these amounts were reimbursements and not part of the taxable value, thus dropping the proceedings initiated by the show-cause notice.

2. Adjudicating Authority's Decision:
The Revenue contended that the adjudicating authority did not correctly ascertain the principal and the services rendered by the respondent, leading to an erroneous decision to drop the proceedings. The adjudicating authority had concluded that the amounts received were reimbursements for expenses incurred on behalf of the principals and were thus outside the purview of Service Tax.

3. Nature of Expenses and Contractual Relationship:
The adjudicating authority examined the nature of expenses and the contractual relationship between the respondent and their principals. It was found that the respondent acted on behalf of their principals, arranging activities and making payments to third parties, including government departments and statutory bodies. The authority determined that these payments were not for services provided by the respondent but were reimbursements for expenses incurred as a "pure agent."

4. Pure Agent Principle:
The adjudicating authority's findings were supported by the principle of "pure agent" as defined under Service Tax regulations. The authority noted that the respondent's role was to organize activities and make payments on behalf of their principals, and the amounts reimbursed could not be included in the taxable value. This view was reinforced by the Delhi High Court's decision in the case of Intercontinental Consultants & Technocrats Pvt. Ltd., which held that reimbursements are not includable in the taxable value.

5. Limitation:
The Revenue also argued that the adjudicating authority erred in dropping the proceedings on the ground of limitation. However, since the appeal was disposed of on its merits, the tribunal did not record any findings on this aspect.

Conclusion:
The tribunal upheld the adjudicating authority's decision, finding no infirmity in the order. The amounts received as reimbursements were correctly excluded from the taxable value, and the principle of "pure agent" was appropriately applied. The appeal filed by the Revenue was rejected.

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