2017 (9) TMI 1004 - AT - Service Tax

Valuation - reimbursable expenses - includibility - Held that - the nature of services are such the appellants are managing participation of clients in certain mela, fairs, promotional activities of merchandise, managing events with a aim to propogate the products of the clients etc. - Held that - exclusion of reimbursement expenditure should be based on pre-arrangement and on actual basis without any mark up. The appellants should have incurred expenditure and got the same reimbursed on actual basis, with supporting document, from the clients. Perusal of various work orders indicate that no such arrangement exist in the present case - Perusal of various work orders indicate that no such arrangement exist in the present case - The appellants are liable to service tax on the gross amount received. They cannot restrict their tax liability to only agency commission in view of the details given in the work orders examined by us. Time limitation - Held that - A perusal of various work orders clearly shows that the appellants deliberately chose to discharge service tax only on the agency commission or fee which is a small portion of the gross amount. The claim for exclusion of other consideration on the ground that they are reimbursable expenditure is found not tenable. The appellant s action of not paying service tax on the gross value and claiming bonafide belief is not acceptable - appeal dismissed - decided against appellant.

Summary

Issues:
1. Classification of taxable service provided by the appellant.
2. Treatment of reimbursable expenses in the calculation of taxable value.
3. Question of limitation in initiating the demand for service tax.

Analysis:

Issue 1: Classification of Taxable Service
The appeal challenged an order by the Commissioner (Adjudication) regarding the classification of services provided by the appellant. The Revenue contended that the appellant, engaged in event management services, incorrectly discharged service tax liability. The Original Authority confirmed a service tax liability of ?1,22,57,631/- on the appellant, imposing an equal penalty. The appellant argued that their services should be classified under business auxiliary/support/exhibition service, not event management, based on the nature of contracts. The Tribunal examined various contracts with clients like Hindustan Lever Ltd., Maruti Suzuki Ltd., etc., and upheld the Original Authority's findings that the services provided fell under event management service as defined in the Act.

Issue 2: Treatment of Reimbursable Expenses
The appellant contended that reimbursable expenses incurred for clients should not be included in the taxable value. They relied on legal precedents stating that such expenses should not be part of the taxable value. However, the Tribunal noted that the appellant did not have a pre-arrangement for reimbursable expenses on an actual basis without any mark-up. Work orders indicated payments under different headings, with no clear arrangement for reimbursement. The Tribunal concluded that the appellant should pay service tax on the gross amount received, as there was no support to categorize any amount as reimbursable cost.

Issue 3: Question of Limitation
The appellant contested the demand on the grounds of limitation, arguing that the show cause notice covering the period from October 2003 to March 2009 was not sustainable. However, the Tribunal found that the appellant deliberately chose to pay service tax only on the agency commission, not the gross amount received. The claim of excluding other considerations as reimbursable expenditure was deemed untenable. The Tribunal upheld the Original Authority's decision, stating that the appellant's failure to pay service tax on the gross value was not acceptable, dismissing the appeal.

In conclusion, the Tribunal upheld the order of the Original Authority, confirming the service tax liability on the appellant and dismissing the appeal on all grounds.