2017 (8) TMI 1232 - AT - Service Tax

Valuation - includibility of reimbursement of expenses - Clearing and Forwarding Agency Service - various expenses such as rent, postage and stationary, telephone charges etc, under claim that these expenses are incurred by them for or on behalf of their principals - taxability - Held that - For providing service minimum input services are required such as rent, postage and stationary, telephone charges etc, without these input services, Clearing and Forwarding service cannot be provided, therefore these services are required for providing Clearing and Forwarding service and has to be part and parcel of the gross value of the service i.e. Clearing and Forwarding Agency - service tax is chargeable on such reimbursement. Penalties - Held that - the issue was contentious and various decisions were given by this Tribunal, the matter also reached to the Larger Bench - It is also fact that appellant is otherwise discharging the service tax on the commission received towards providing Clearing and Forwarding Agency service - it cannot be said that appellant had intention to evade service tax, therefore appellant have made out a fit case for waiver of penalties invoking Section 80 of the Finance Act. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
Service tax liability on expenses reimbursement in Clearing and Forwarding Agency service; Imposition of penalties under Sections 76, 77, and 78.

Analysis:
The appellant, a Clearing and Forwarding Agent, was not discharging service tax on expenses like rent, postage, and telephone charges, claiming they were incurred for or on behalf of their principals. A show cause notice was issued for demand of ?2,03,673 and penalties under Sections 76, 77, and 78. The adjudicating authority confirmed the demand, considering the expenses as part of the service activity based on a precedent. The appellant appealed, arguing that the reimbursement should not be included in the gross value of the service as they were working purely as agents. They contended that penalties should not apply due to the contentious interpretation of valuation provisions and the belief that reimbursement was not taxable.

The Tribunal found that the expenses were necessary for providing the Clearing and Forwarding service, making them part of the gross value of the service. Citing a precedent, the Tribunal held that expenses required for providing output service are includible in the gross value of services. As the expenses were mandatory for the business, the reimbursement was deemed chargeable to service tax. However, considering the contentious nature of the issue and the appellant's compliance with service tax on commission, the Tribunal waived the penalties under Sections 76, 77, and 78, invoking Section 80 of the Finance Act. The impugned order was modified accordingly, partially allowing the appeal.

In conclusion, the Tribunal held that service tax was applicable on the reimbursement of expenses in Clearing and Forwarding Agency service as they were essential for providing the service. However, penalties under Sections 76, 77, and 78 were waived due to the appellant's compliance with service tax on commission and the contentious nature of the issue.