2017 (9) TMI 85 - AT - Service Tax

Business Auxiliary Services - whether the appellant is liable to pay service tax on the turnover achieved by Tiems Telecom (P) Ltd. (a company) having separate Service Tax registration number? - Held that - The said company was registered with the Service Tax Department and was carrying on business since 2004-05. The appellant started business w.e.f. 14-2-2008 - appellant is not liable to tax for such turnover achieved by the Pvt. Ltd. Company, M/s. Tiems Telecom Pvt. Ltd. on and before 14-2-2008. Whether the appellant is entitled to deduction for reimbursement of certain expenses from the principal under the provisions of Section 67 of the Finance Act? - Held that - Section 67 of the Finance Act, 1994 provides that whatever is received by the service provider in his capacity as pure agent, such amounts shall not form part of the gross turnover liable to tax. I further find that proper findings have not been recorded as to the exact nature of receipts and as to deductibility - appeal allowed by way of remand to adjudicating authority. Penalties u/s 76 and 78 - Held that - it is not a case of deliberate default, as the appellants have paid substantially the amount of taxes and there appears to be interpretational issue in regard to gross amount taxable - there was a dispute among the Directors of the Pvt. Ltd. company, which finally lead to the closure of the business in February, 2008 - penalties set aside. Appeal allowed in part and part matter on remand.

Issues Involved:
1. Liability of the appellant to pay service tax on the turnover achieved by Tiems Telecom (P) Ltd.
2. Entitlement of the appellant to deduction for reimbursement of certain expenses from the principal under Section 67 of the Finance Act.

Detailed Analysis:

1. Liability to Pay Service Tax on Turnover Achieved by Tiems Telecom (P) Ltd.:

The appellant, a service provider under "Business Auxiliary Services," appealed against the order-in-appeal dated 10-8-2015. The core issue was whether the appellant was liable to pay service tax on the turnover achieved by Tiems Telecom (P) Ltd., a company with a separate Service Tax registration number. The adjudicating authority had previously allowed credit of ?1,21,825 out of the total demand and confirmed the balance demand of ?1,06,450. Upon review, it was held that the appellant was not liable for service tax for the turnover achieved by Tiems Telecom (P) Ltd. on and before 14-2-2008.

2. Entitlement to Deduction for Reimbursement of Expenses:

The second issue concerned the appellant's entitlement to deductions for reimbursements under Section 67 of the Finance Act. The appellant argued that the service tax demand included amounts reimbursed for expenses, which should not be taxable. The Commissioner (Appeals) initially rejected this claim, stating that the terminologies in the ‘statement of account’ were cryptic and did not clearly indicate reimbursements.

Upon further examination, it was noted that the "Tele Shop Agreement" between the appellant and M/s. Aircel Digilink India Ltd. specified that no reimbursements for rent, salary, or other expenses were to be made to the appellant. Therefore, any amounts received were considered commissions and not reimbursements. However, the adjudicating authority was directed to re-evaluate the exact nature of the receipts and determine the deductibility of expenses incurred as a pure agent under Section 67.

Directions for Re-calculation:

The appeal was allowed by way of remand to the adjudicating authority with specific directions:
- The appellant is not liable for service tax on turnover attributable to Tiems Telecom (P) Ltd. prior to 14-2-2008.
- The appellant is entitled to deductions for expenses incurred on behalf of the principal as a pure agent.
- The adjudicating authority must re-calculate the tax liability, giving credit for any challans not previously considered.

Penalties:

Penalties under Sections 76 and 78 were set aside, as the case did not involve deliberate default. The appellants had substantially paid the taxes, and the issue appeared to be interpretational. Additionally, disputes among the Directors of the Pvt. Ltd. company, which led to the closure of the business in February 2008, were considered.

Conclusion:

The appellant was directed to appear before the adjudicating authority within 45 days to seek a hearing and present their representation. The appeal was allowed by way of remand with the aforementioned directions, effectively resolving both issues in favor of the appellant.

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