2017 (5) TMI 1464 - AT - Service Tax

Valuation - whether reimbursable out-of-pocket expenses has to be included in the gross value of taxable services? - Held that - in the case of Intercontinental Consultants & Technocrats 2012 (12) TMI 150 - DELHI HIGH COURT , the Hon ble High Court of Delhi has held in favor of the assessee thereby observing that the same need not be included in the gross value of taxable services - the appellants are not liable to pay service tax on the reimbursable out-of-pocket expenses - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of services rendered by the assessees under Business Auxiliary Service.
2. Inclusion of reimbursable out-of-pocket expenses in the gross value of taxable services.
3. Validity of the show cause notice concerning the time-barred claim.
4. Imposition of penalties under sections 76 and 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Classification of Services Rendered under Business Auxiliary Service:
The department contended that the services provided by the assessees, which involved promotion and marketing of loans for a bank, fell under the category of Business Auxiliary Service. This classification was not disputed by the assessees.

2. Inclusion of Reimbursable Out-of-Pocket Expenses in Gross Value of Taxable Services:
The primary contention from the assessees was that reimbursable out-of-pocket expenses should not be included in the gross value of taxable services. They relied on several judgments, including:
- Bhaven Desai vs. Commissioner of Service Tax: The Tribunal in this case ruled that reimbursable expenses should not be included in the gross value of taxable services.
- Intercontinental Consultants & Technocrats Pvt. Ltd. vs. Union of India: The Delhi High Court held that only the consideration paid for the service should be taxed, and not the reimbursable expenses.
- Malabar Management Services Pvt. Ltd. vs. Commissioner of Service Tax, Chennai: This Tribunal decision also supported the exclusion of reimbursable expenses from the taxable value.

The Tribunal noted that the issue of including reimbursable out-of-pocket expenses in the gross value of taxable services was pending before the Supreme Court. However, in line with the judicial discipline and existing judgments favoring the assessees, it was held that such expenses should not be included in the taxable value.

3. Validity of the Show Cause Notice:
The assessees argued that the show cause notice was time-barred, asserting that they had declared the reimbursable expenses in their declaration filed on 28.10.2004. The department countered that these expenses were not declared in the returns and were discovered only after a departmental search, justifying the extended period of limitation due to suppression of facts.

The Tribunal, having decided the issue in favor of the assessees on merits, found it unnecessary to address the limitation aspect.

4. Imposition of Penalties under Sections 76 and 78 of the Finance Act, 1994:
The original authority had imposed penalties under sections 76 and 78, which the Commissioner (Appeals) partially set aside by removing the penalty under section 76. The department appealed against this decision, while the assessees contested the remaining penalties.

Given the Tribunal's decision that reimbursable out-of-pocket expenses should not be included in the taxable value, it was implied that the penalties under section 78 were also not warranted. Consequently, the Tribunal allowed the assessees' appeal and dismissed the department's appeal.

Conclusion:
The Tribunal set aside the impugned order, allowing the assessees' appeal with consequential reliefs and dismissing the department's appeal. The judgment emphasized that reimbursable out-of-pocket expenses should not be included in the gross value of taxable services, aligning with the judgments in Bhaven Desai, Intercontinental Consultants & Technocrats, and Malabar Management Services.

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