2017 (3) TMI 118 - AT - Service Tax

Extending Corporate guarantee and LC to the respondent - classifiable under the category of Business Support Services or not? - penalty u/s 77 and 78 - Held that - appellant-assessee could have had bonafide belief as to that the amounts paid for extending corporate guarantee to the Banks may not be a service rendered to the appellant as the banks extended loan facilities to the appellant-assessee - the provisions of Section 73(3) are applicable in this case as also the Section 80 of the Finance Act, 1994 can be applicable in the peculiar facts and circumstances of the case - penalty set aside. Reimbursible expenses - valuation - Held that - the service tax liability on the amount paid as reimbursable to the professionals will not includable as gross value of services and not taxable under Rule 5(1) and also the Rule 7 of the Service Tax Valuation Rules which categorically rules out the reimbursable expenses. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Classification of services provided by foreign associates as Business Support Services (BSS) and Consulting Engineering Services.
2. Dispute regarding service tax liability on certain charges.
3. Imposition of penalties under various sections.

Analysis:
1. The judgment involved three appeals challenging the order-in-appeal passed by the Commissioner of Central Excise (Appeals). The respondent had paid Bank Guarantee Fees and LC charges to their associated foreign companies, which were considered as Business Support Services (BSS) liable to service tax. The respondent disputed the service tax liability on charges related to Consulting Engineering Services. The adjudicating authority confirmed part of the demand and rejected the appeals of both the Revenue and the assessee. The assessee argued that the services were not rendered to them directly, while the Revenue contended that the expenses were for services rendered by the foreign associates.

2. The assessee had discharged the service tax liability on certain amounts but disputed additional charges. The adjudicating authority did not confirm the demand for a specific amount, leading to appeals from both parties. The assessee claimed that penalties should not have been imposed as they had paid the tax after being pointed out, while the Revenue argued that the charges were taxable under Business Support Services. The department contended that expenses related to installation and commission of the plant should be included in the gross valuation of services under Consulting Engineering Services.

3. The Tribunal considered submissions from both sides and reviewed the records. Regarding the appeals filed by the assessee, the Tribunal found that the assessee had discharged the tax liability after an objection was raised during an audit. The Tribunal held that penalties should not be imposed under Section 77 and 78 of the Finance Act, 1994, invoking Section 80 based on the peculiar facts of the case. As for the Revenue's appeal, the Tribunal determined that the reimbursable expenses paid by the assessee were not taxable under Consulting Engineering Services. The Tribunal upheld the first appellate authority's decision and rejected the Revenue's appeal while allowing the assessee's appeals.

In conclusion, the Tribunal rejected the Revenue's appeal and allowed the assessee's appeals, providing a detailed analysis of the classification of services, disputed tax liabilities, and the imposition of penalties under various sections.