2016 (12) TMI 605 - AT - Service Tax

Valuation - expenses reimbursed by the hotel to the Appellant towards the actual expenses incurred - whether such reimbursable expenses can be subjected to service tax under Section 67 of the Finance Act, by treating the same as part of the gross amount charged by the service provider for services provided by him? - Held that - the issue is now dealt with and settled by the judgment of a Division Bench of the Hon ble High Court of Delhi, in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. vs. UOI 2012 (12) TMI 150 - DELHI HIGH COURT , where it was held that reimbursable expenses cannot form part of the gross value of the services being provided by the service provider. In as much as in the present case the salary of the employees being sent by the appellant to their hotels is being paid by the appellant directly to the employee and the same is being reimbursed by the hotel without any markup. As such in terms of the law declared by the High Court of Delhi such reimbursable expenses collected by the services provider from the service recipient cannot be held to be a part of the value of the services being provided by the appellant - tax not leviable. Extended period of limitation - Held that - The issue involved is a bonafide issue of interpretation of legal points which were the subject matter of various decisions. As such it cannot be said that there was any suppression or misstatement with any malafide intention to evade duty on the part of the appellant, thus justifying invocation of longer period of limitation - In as much as entire demand is beyond the normal period of limitation we set aside the demand along with penalties imposed on the appellant and set aside the impugned order and allow the appeal on this account also. Appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
Interpretation of service tax on reimbursable expenses in the context of operating hotels under a brand agreement, applicability of Section 67 of the Finance Act, and the impact of a previous High Court judgment on the case.

Analysis:
The judgment by the Appellate Tribunal CESTAT NEW DELHI addresses the issue of whether reimbursable expenses incurred by a hotel towards employees sent by the appellant can be subjected to service tax under Section 67 of the Finance Act. The appellant, operating hotels under various brands, had a dispute regarding expenses reimbursed by the hotel for employees involved in day-to-day operations. The employees, though on the appellant's payroll, worked at the hotel to maintain brand standards. The Tribunal referred to a Delhi High Court decision stating that reimbursable expenses cannot be part of the gross value of services provided. Since the salaries were paid directly by the appellant and reimbursed without markup, the Tribunal held that such expenses are not part of the service value.

Furthermore, the Tribunal considered the issue of limitation in the demand raised by the tax authorities. It noted that the demand was beyond the normal period of limitation and that the issue involved interpretation of legal points covered by previous decisions. The Tribunal found no evidence of suppression or misstatement by the appellant to evade duty, concluding that the demand was not justified beyond the normal limitation period. Consequently, the Tribunal set aside the demand and penalties imposed on the appellant, allowing the appeal on this ground as well. The judgment highlights the importance of legal interpretation, adherence to precedents, and the application of tax laws within the specified limitation periods to ensure fairness and compliance in tax matters.