2017 (7) TMI 246 - AT - Service Tax

Valuation - reimbursable expenses - statutory expenses - rent of office, salary to staff, charges toward electricity, stationery, courier, travel and uniforms expenses - includibility - Held that - It would not be possible to draw a distinction between the portion of the consideration that does not relate to these activities. In consequence, the tax liability crystallises on the gross value services subject to the various deductions permitted by the first appellate authority - demand with interest upheld - penalty set aside by invoking section 80 - appeal allowed - decided partly in favor of appellant.

Issues:
Scope for inclusion of reimbursable expenses in the gross value of taxable service, applicability of extended period for demand, interpretation of taxable service as per section 65 (105) (w) of Finance Act, 1994, liability of security agency service provider for service tax.

Analysis:

1. Scope for inclusion of reimbursable expenses in the gross value of taxable service:
The appellant, a security agency service provider, contested the inclusion of expenses like statutory payments, office rent, staff salary, etc., in the taxable value. The appellant claimed that they had been paying service tax after deducting these reimbursable expenses and filing returns regularly. The appellant relied on the decision of the Hon’ble High Court of Delhi and argued that reimbursements are not liable to tax without a specific provision in section 67 of the Finance Act, 1994. The appellant also cited amendments in the Explanation to section 67 by the Finance Act, 2015, to support their claim of excluding reimbursable expenses from taxable service computation until then. The appellant further argued against the invocability of the extended period for demand based on precedents from various Tribunal decisions.

2. Applicability of extended period for demand:
The appellant contested the applicability of the extended period for demand, citing precedents from Tribunal decisions like Gujarat Intelligence Security v. Commissioner of Central Excise, Vadodara, Malabar Management Services Pvt Ltd v. Commissioner of Service Tax, Chennai, and S Jayashree v. Commissioner of Central Excise, Mangalore. The appellant sought to establish that the extended period should not be invoked based on these precedents.

3. Interpretation of taxable service as per section 65 (105) (w) of Finance Act, 1994:
The taxable service under section 65 (105) (w) of the Finance Act, 1994 pertains to services provided by a security agency in relation to security of property or person. The definition of security agency includes services related to security of property or person, investigation, detection, verification, and providing security personnel. The appellant contended that they are suppliers of manpower and argued for limiting the taxable service value by excluding wages and salaries paid to personnel.

4. Liability of security agency service provider for service tax:
The Tribunal analyzed the nature of the taxable service and the definitions related to security agency services. The Tribunal noted that the consideration subject to tax is the total amount receivable by the service provider from the recipient. While the appellant supplied personnel, they were responsible for the administration and operation of security services, indicating a lack of distinction in the consideration related to these activities. Therefore, the tax liability was determined based on the gross value of services subject to permitted deductions.

5. Conclusion:
The Tribunal modified the order to reduce the demand to ?17,87,548 after exclusions. Considering the differing interpretations on the gross value of taxable service and the appellant's regular tax payments, the penalty under section 78 of the Finance Act, 1994 was set aside invoking section 80. The Tribunal emphasized that non-payment or short-payment of tax should not be attributed to deliberate tax evasion, given the complexities and interpretations involved in tax liabilities.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT MUMBAI covers the issues related to the inclusion of reimbursable expenses, applicability of the extended period for demand, interpretation of taxable service, and the liability of the security agency service provider for service tax.

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