2016 (12) TMI 1530 - AT - Service Tax

Valuation - reimbursable expenditure - incurring of certain expenditure on behalf of the principals like placing advertisements for procurement of materials required for executing the project, clearing & forwarding of such material from the port to the project sites etc - whether the reimbursable expenses to be included in assessable value? - Held that - We find that reimbursed expenses in question are of a type which is not required to be rendered by consulting engineering services. The activities for which such charges are levied are not covered in the definition of consulting engineering services. We also find that the identical issue was subject matter of Tribunal s decision in the case of Louis Berger International Inc. Vs. CCE 2009 (3) TMI 375 - CESTAT, BANGALORE , where it was held that reimbursement of expenses incurred while rendering consulting Engg. Services are liable to be deducted from the gross value - no demand can be made on reimbursable expenses. Entire demand beyond the normal period of limitation - barred by limitation. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether reimbursed expenses should be included in the value of services for the purpose of service tax.
2. Whether the demand for service tax on reimbursed expenses is time-barred.

Analysis:

Issue 1:
The appellant, a Govt. of India undertaking, provided consulting engineering services to various parties, including IPCL, for setting up chemical plants. They paid service tax on the amounts billed for their services but did not include certain reimbursed expenses, such as advertisement charges and clearing & forwarding expenses, in the value of services for which tax was paid. The Revenue contended that these reimbursed amounts should be considered part of the value of service. The appellant argued that the reimbursed expenses were not related to consulting engineering services and should not be taxed. The Tribunal examined previous decisions and held that expenses reimbursed while rendering consulting engineering services are not liable to be included in the gross value of services. The Tribunal agreed that the reimbursed expenses in question did not form part of the value of services rendered, and thus, no demand could be made on such expenses.

Issue 2:
The appellant also raised a contention regarding the time-bar for demanding tax on the reimbursed expenses. The appellant pointed out that a previous order by the Commissioner (Appeals) had dropped a demand on similar grounds due to the unavailability of an extended period for demanding tax. The Revenue argued that each contract should be treated separately, and in the case under dispute, relevant information was not disclosed by the appellants to the department, resulting in suppression. However, the Tribunal found that as the Revenue had issued a show cause notice in 2001 for similar contracts, which was dropped, there was no ground to allege suppression. Citing a Supreme Court decision, the Tribunal held that the entire demand was beyond the normal period of limitation, and therefore, the demand for service tax on reimbursed expenses was barred by limitation. As a result, the impugned order was set aside, and the appeal was allowed with consequential relief, if any.