2017 (10) TMI 851 - AT - Service Tax

Valuation - reimbursable expenses - whether the appellant is liable to pay service tax under reverse charge on the amounts paid to the mutual fund distributors in debit notes? - Held that - the Tribunal in a number of cases has observed that once tax stands paid by the service provider sub-contractor etc. second time confirmation of service tax on the service recipient would amount to double taxation - it needs to be examined as to whether service tax was paid by the service provider in respect of reimbursable expenses collected from the appellant by way of debit notes or not - appeal allowed by way of remand.

Summary

Issues:
1. Liability to pay service tax under reverse charge on amounts paid to mutual fund distributors in debit notes.
2. Whether service tax already paid by the service provider on reimbursable expenses collected through debit notes.
3. Double taxation concern in case of second-time confirmation of service tax on the service recipient.

Analysis:

Issue 1: Liability to pay service tax under reverse charge on amounts paid to mutual fund distributors in debit notes
The Appellant was engaged in managing assets of various schemes of a mutual fund, attracting service tax under banking and financial services. The Appellant discharged service tax liability on reverse charge basis for certain services received from mutual fund distributors but failed to do so for other services. A Show Cause Notice was issued demanding service tax amount for a specific period. The adjudicating authority confirmed the demand, imposed interest, and penalty. The appeal was filed challenging the liability to pay service tax under reverse charge on amounts paid through debit notes to mutual fund distributors.

Issue 2: Service tax already paid by the service provider on reimbursable expenses collected through debit notes
The contention was that the service provider had already discharged the service tax liability on reimbursable expenses collected through debit notes, and thus, no further tax liability confirmation should be made for the second time. The Appellant referred to various decisions stating that double taxation would occur if service tax is confirmed on the service recipient when already paid by the service provider. The Tribunal had previously observed instances where second-time confirmation of service tax would result in double taxation.

Issue 3: Double taxation concern in case of second-time confirmation of service tax on the service recipient
The Tribunal referred to previous decisions highlighting that if service tax was already paid by the service provider, confirming tax liability on the service recipient again would lead to double taxation. However, to determine whether service tax was indeed paid by the service provider on reimbursable expenses collected through debit notes, the impugned order was set aside. The matter was remanded to the original adjudicating authority for document verification. Additionally, a small amount was in question, and the adjudicating authority was directed to examine this issue and pass a fresh order while adhering to the principles of natural justice.

This judgment addresses the liability of the Appellant to pay service tax under reverse charge, the issue of service tax payment by the service provider on reimbursable expenses, and the concern of double taxation in case of multiple tax confirmations. The decision emphasizes the need for proper verification before confirming tax liabilities and ensures adherence to legal principles in the adjudication process.