2017 (11) TMI 547 - AT - Service Tax

Valuation - Event management services - The case of the revenue is that service tax is payable on the gross amount charged by the service provider, including the expenses incurred by the appellant and subsequently reimbursed by the service receiver - case of appellant is that such expenses have been incurred by the appellant on behalf of the clients as a pure agent and hence not includible in the assessable value for charging service tax - Held that - Section 67 of the Finance act deals with the valuation of services for charging of service tax. The said section was substituted w.e.f. 01.05.2006. Concurrently the service tax valuation rules were also introduced which provide for arriving at the value for purpose of charging service tax. Under old section 67 the value of taxable services was defined as Gross amount charged by the service provider . The period involved in the present case is from Oct 2002 to March 2007. It covers the period covered under old and new section 67 - By considering the nature of service provided by the appellant, we are of the view that all such expenditure would go towards provision of event management services by the appellant. The service itself cannot be completely rendered without such equipments or services. Hence we have no hesitation in concluding that such amounts are to be considered as part of gross amount charged by the appellant. Pure Agent - rule 5 (2) of the Service Tax Valuation Rules 2006 - Held that - In the said rule, expenditure incurred by the service provider as a pure agent can be excluded from the value of taxable service subject to the condition that all the eight conditions specified there are satisfied - it is to be concluded that the appellant did not have the capacity to act as pure agent and did not fulfill the conditions of pure agent under the relevant rule. Hence the appellant will not be entitled to exclude expenses incurred. Reliance placed in the decision in the case of Neelav Jaiswal & Brothers Versus CCE, Allahabad 2013 (8) TMI 147 - CESTAT NEW DELHI , where it was held that unless all the conditions pure agent are satisfied, the appellant will not be entitled to any exclusion from the taxable service for amounts received towards salary, provident fund, etc. Quantum of service tax to be demanded - Held that - the case is required to be remanded to the adjudicating authority for re-quantification of demand for consideration of the misgivings of the appellant. Appeal allowed in part and part matter on remand.

Summary

Issues Involved:
1. Inclusion of reimbursable expenses in the taxable value for service tax.
2. Applicability of the "pure agent" concept.
3. Validity of invoking extended period of limitation.
4. Quantum of service tax demand and penalties.

Issue-wise Detailed Analysis:

1. Inclusion of Reimbursable Expenses in Taxable Value:
The primary issue was whether reimbursable expenses should be included in the taxable value for service tax purposes. The appellant argued that such expenses, incurred on behalf of clients, should not be included in the assessable value, citing the Hon’ble High Court of Delhi's decision in the Intercontinental Consultants case, which struck down Rule 5 of the Service Tax (Determination of Value) Rules 2006 to the extent that it included reimbursements in the gross amount charged. The Tribunal, however, noted that the appellant's invoices for event management services included costs for hiring equipment and services essential for delivering the event management service. It concluded that these expenses were integral to the service provided and should be included in the gross amount charged.

2. Applicability of the "Pure Agent" Concept:
The appellant claimed to act as a "pure agent," which would exclude reimbursable expenses from the taxable value under Rule 5(2) of the Service Tax Valuation Rules, 2006. The Tribunal examined the contractual agreements and found no evidence that the appellant was authorized to act as a pure agent. The agreements explicitly stated that the relationship was on a principal-to-principal basis, negating any agency relationship. Thus, the appellant did not meet the conditions to qualify as a pure agent, and the reimbursable expenses could not be excluded from the taxable value.

3. Validity of Invoking Extended Period of Limitation:
The appellant argued that conflicting views on the inclusion of reimbursements in the assessable value meant that the extended period of limitation should not apply. The Tribunal did not explicitly address this argument in the judgment, focusing instead on the substantive issue of whether the expenses were part of the gross amount charged.

4. Quantum of Service Tax Demand and Penalties:
The appellant contested the quantum of service tax demand, asserting that the adjudicating authority did not consider a chartered accountant's certificate that indicated the actual reimbursed amounts. The Tribunal agreed that the case required remand for re-quantification of the demand, instructing the adjudicating authority to consider the appellant's submissions and any additional evidence. The penalties would also be reconsidered in light of the revised demand.

Conclusion:
The Tribunal upheld the inclusion of reimbursable expenses in the taxable value for service tax and rejected the appellant's claim of acting as a pure agent. The case was remanded for re-quantification of the service tax demand and reconsideration of penalties, with instructions for the adjudicating authority to consider additional evidence and hear the appellant. The appeal was partially allowed, with specific directions for further proceedings.