2016 (6) TMI 721 - AT - Service Tax

Valuation - inclusion of reimbursement of expenses for providing clearing and forwarding service - Held that - when the reimbursements are part and parcel of the services provided and depress the value of consideration that shall be taken into consideration while determining the gross value of the services - Demand of service tax confirmed - levy of penalty waived - Decided partly in favor of assessee.

Summary

Issues:
Tax liability on reimbursement values included in gross value of consideration received for services provided; Penalty imposition for misinterpretation of law regarding taxability of expenses.

Analysis:
The case involved a dispute regarding the tax liability on reimbursement values included in the gross value of consideration received for services provided by the appellant. The appellant contended that the reimbursements made, not being towards the services provided, should not be subject to tax liability, except for the consideration received from Clearing and Forwarding services. The argument was based on the premise that such reimbursements fall outside the scope of the gross value of consideration. However, the Revenue supported the adjudication, leading to a legal conflict.

Upon hearing both sides and examining the records, the Tribunal referred to the decision of the Larger Bench in the case of Sri Bhagavathy Traders Vs CCE Cochin. The Tribunal held that when reimbursements are integral to the services provided and affect the value of consideration, they should be considered in determining the gross value of services. Therefore, the Tribunal concluded that there would be tax liability on reimbursements as well, in line with the interpretation provided by the Larger Bench.

Despite the tax liability being established, the Tribunal decided not to impose a penalty on the appellant. This decision was based on the fact that the interpretation of the law regarding the taxability of expenses was a matter of contention, especially considering that the service tax regime was still in its early stages of implementation. Therefore, the Tribunal exercised leniency in not imposing a penalty, given the circumstances surrounding the case.

In conclusion, the appeal was partly allowed, with the Tribunal ruling in favor of tax liability on reimbursements but refraining from imposing a penalty on the appellant due to the interpretational nature of the legal provisions at the time of the dispute.