2017 (3) TMI 1413 - AT - Service Tax

Liability of tax - reimbursable amounts which have been collected on the items like Security Guards, Videography Police, Escorts, DM/CMM charges etc. - Invoking expended period of limitation Difference of opinion - Matter referred to larger bench.

Summary

Issues Involved:
1. Liability of service tax on reimbursable amounts collected for various services.
2. Wrongful denial of credit of ?1,74,681.
3. Taxability of amounts incurred and charged as a Pure Agent.
4. Applicability of Rule 5(2) of Service Tax (Determination of Value Rules), 2006.
5. Invocation of the extended period for tax demand.
6. Eligibility for benefit under Section 80 due to bona fide belief.
7. Imposition of penalty under Section 78.

Issue-wise Detailed Analysis:

1. Liability of Service Tax on Reimbursable Amounts:
The appellant argued that service tax was wrongly confirmed on amounts realized for services provided prior to 1.5.2006. The Commissioner (Appeals) observed that the appellant, acting as a recovery agent, incurred expenses such as security guards, police escorts, and videography, which were essential for performing their services. These expenses, even if reimbursed by the banks, were deemed integrally linked to the taxable value of the services provided. The Tribunal upheld this view, noting that such expenses are includible in the taxable value as they are essential for the performance of the recovery agent's duties.

2. Wrongful Denial of Credit:
The appellant contested the denial of credit amounting to ?1,74,681. The Tribunal remanded this issue back to the original adjudicating authority for verification. It was noted that if the confirmation of service tax on certain expenses resulted in double taxation, the appellant would be entitled to claim the same back as Cenvat credit or refund.

3. Taxability of Amounts as a Pure Agent:
The appellant claimed that amounts incurred and charged as a Pure Agent should not be taxable. They relied on various case laws to support their claim. However, the Commissioner (Appeals) and the Tribunal found that the expenses incurred by the appellant were essential input services for performing their duties as recovery agents. Therefore, these expenses were includible in the taxable value, as they were not merely reimbursable costs but integral to the service provided.

4. Applicability of Rule 5(2):
The appellant argued that reimbursement of expenses charged on an actual basis is not taxable under Rule 5(2) of the Service Tax (Determination of Value Rules), 2006. The Commissioner (Appeals) and the Tribunal held that the expenses incurred were essential for the recovery agent’s services and thus includible in the taxable value. The Tribunal cited the Larger Bench decision in Sr. Bhagvathy Traders Vs. CCE, affirming that such expenses are taxable.

5. Invocation of Extended Period:
The appellant contended that the extended period for tax demand was not invocable, relying on the Apex Court's judgment in M/s Kushal Fabricators Pvt Ltd. Vs. CCE. However, the Tribunal found that the appellant had not disclosed required information to the department and had avoided investigation, justifying the invocation of the extended period due to deliberate mis-declaration and suppression of facts.

6. Eligibility for Benefit under Section 80:
The appellant claimed eligibility for the benefit under Section 80 due to a bona fide belief, supported by various judgments. However, the Tribunal did not find sufficient grounds to accept this argument, given the appellant's lack of disclosure and cooperation during the investigation.

7. Imposition of Penalty under Section 78:
The appellant argued that no penalty should be imposed under Section 78 as there was no suppression of facts. The Tribunal disagreed, citing the appellant's deliberate mis-declaration and suppression of facts, which justified the penalty.

Separate Judgments by Judges:

Member (Technical):
The Member (Technical) upheld the demand, including reimbursable expenses in the taxable value, and justified the invocation of the extended period. The appeal was not allowed except for the issue of denial of Cenvat credit, which was remanded for verification.

Member (Judicial):
The Member (Judicial) found that reimbursable expenses should be excluded from the taxable value subject to verification of agreements and invoices. The demand was also found to be time-barred, and the appeal was allowed on this ground. The matter was remanded for verification of agreements and invoices.

Difference of Opinion:
1. Whether reimbursable expenses should be included in the taxable value or excluded subject to verification.
2. Whether the extended period of limitation was rightly invoked or if the demand was time-barred.

Conclusion:
The appeal was decided with a remand on the issue of denial of Cenvat credit for verification, and a difference of opinion on the inclusion of reimbursable expenses and the invocation of the extended period.