2009 (2) TMI 43 - AT - Service Tax

Applicability of the unjust enrichment actual expenses, incurred by the foreign consultant while imparting training to the appellants personnel in Japan and subsequently reimbursed by the appellants, were rightly held to be not towards consulting engineering services revenue s plea that it is not service tax and no credit for the same is available as input service credit, is acceptable - amount being not input service credit, refund claim will be governed by doctrine of unjust enrichment

Summary

Issues Involved: Refund claims rejected on the ground of unjust enrichment for service tax paid on expenses incurred by foreign consultants for training personnel and expenses incurred by personnel during a visit to India.

Analysis:

Issue 1: Applicability of Unjust Enrichment Clause
In the first appeal (ST/168/08), the appellants claimed a refund of service tax paid on expenses reimbursed to a foreign consultant for training personnel. The appellants argued that the payment was connected to input services and thus not subject to unjust enrichment. However, the tribunal held that the expenses were not related to consulting engineering services but rather living, food, and travel expenses in Japan. As no service tax was leviable on these expenses, the refund claim was not considered as input service credit. The tribunal rejected the argument that the refund claim fell outside the purview of unjust enrichment, emphasizing that the doctrine applied due to the nature of the expenses.

Issue 2: Treatment of Refund Claim in Accounting
The appellants contended that the refund claim was treated as a loss in their accounting records and not as an expenditure. They argued that under accounting standards, losses are debited to the Profit and Loss Account and cannot be treated as an asset. However, the tribunal found this argument untenable, stating that any payment debited to the Profit and Loss Account is considered a revenue expenditure, impacting the cost of finished goods. Citing a case precedent, the tribunal emphasized the need to reflect the true cost incurred for earning receipts against current year's revenue.

Issue 3: Passing the Test of Unjust Enrichment
In the second appeal (ST/169/08), similar to the first, the appellants sought a refund for service tax paid on expenses incurred by foreign personnel during a visit to India. The tribunal applied the same reasoning as in the first appeal, concluding that the expenses were not related to consulting engineering services and thus not subject to service tax. The tribunal upheld the Commissioner's decision to reject the refund claims, emphasizing the applicability of the unjust enrichment doctrine in both cases.

In conclusion, the tribunal upheld the orders rejecting the refund claims in both appeals, emphasizing the application of the unjust enrichment principle due to the nature of the expenses incurred by the appellants in both scenarios.