2017 (11) TMI 1573 - AT - Service Tax

Valuation- includibility - reimbursable amounts which have been collected on the items like Security Guards, Videography Police, Escorts, DM/CMM charges etc - Whether the demand has to be upheld by not excluding the reimbursable expenses from the value of the services as held by Ld. Member (Technical) or the same have to be excluded subject to verification of the agreement between the appellant and the banks and the invoices etc. as held by ld. Member (Judicial) - extended period of limitation - difference of opinion - majority decision. Held that - the decision of the Hon‟ble Delhi High Court in Intercontinental Consultants & Technocrafts Pvt. Ltd. 2012 (12) TMI 150 - DELHI HIGH COURT has not been considered, before a decision is arrived at by the ld. Member (T). The Hon‟ble Delhi High Court held that the rule 5 (1) of the Valuation Rules 2006 is ultra virus of the substantive legal provisions of Section 67 and 68 of Finance Act, 1994. The High Court was dealing with similar reimburseable expenditure regarding travel or accommodation - The facts of the present case along with connected documentary evidences are to be examined - the findings of the ld. Member (J) with reference to remand of the matter to the Original Authority is correct - the amounts claimed to be re-imburseable expenses can be excluded from the assessable value subject to verification of the agreements between the appellant and the banks and the supporting documents like invoices, etc to be submitted by the appellant. Time limitation - Whether the extended period of limitation has been rightly invoked as held by ld. Member (Technical) or the demand is barred by limitation as held by ld. Member (Judicial ) and as such, the appeal is to be allowed in toto, on the said disputed issue? - Held that - Admittedly, the appellants maintained records of all the expenses and the present demand was based on such records. In such situation, I find that the demand cannot be invoked by alleging willful misstatement, fraud and intention to evade payment of tax. Here, the extended period was invoked on the ground that the information was not disclosed to the Department. When there is a bonafdide doubt based on the interpretation of the legal provisions, the question of suppression and willful mis-statement cannot be sustained. - The extended period of limitation cannot be sustained in the facts and circumstances of the present case. Consequent on the findings by the 3rd Member on reference, in terms of majority view, the impugned order is set-aside and appeal is allowed with consequential relief on the point of time bar.

Issues Involved:
1. Liability of service tax on reimbursable amounts collected.
2. Denial of Cenvat credit.
3. Applicability of extended period for invoking the limitation period.
4. Imposition of penalties under Section 78.

Issue-wise Detailed Analysis:

1. Liability of Service Tax on Reimbursable Amounts:
The appellant, a recovery agent, collected reimbursable amounts for services like security guards, videography, police escorts, and other charges. The appellant argued that these expenses, incurred on behalf of the client and substantiated by documentary evidence, should not be chargeable to tax under Rule 5(2) of Service Tax (Determination of Value Rules), 2006. The Tribunal, however, upheld the Commissioner (Appeals)’s decision, noting that such expenses are essential input services integrally linked with the main service of recovery agent. Therefore, even if reimbursed by the banks, they are includible in the taxable value. The Tribunal referred to the Larger Bench decision in Sr. Bhagvathy Traders and other cases, concluding that the expenses incurred were essential for providing the service and thus taxable.

2. Denial of Cenvat Credit:
The appellant claimed that they paid service tax at 8% on the value of exempted services, and the demand was confirmed at the full rate, leading to double taxation. The Tribunal remanded this issue back to the original adjudicating authority for verification. If the confirmation of service tax on certain expenses resulted in double taxation, the appellant would be entitled to claim it back as Cenvat credit or refund after necessary verification and a personal hearing.

3. Applicability of Extended Period for Invoking Limitation:
The Tribunal found that the appellant did not disclose the required information to the department and disregarded summons, leading to the conclusion of deliberate mis-declaration and suppression of facts. Thus, the extended period was rightly invoked. However, the Judicial Member disagreed, citing the Delhi High Court’s decision in Intercontinental Consultants & Technocrats Pvt. Ltd., which held Rule 5(1) of the Valuation Rules ultra vires. The Judicial Member argued that the issue was subject to legal interpretation and the appellant disclosed reimbursable expenses in their returns, thus no malafide intent could be attributed. Consequently, the demand was barred by limitation.

4. Imposition of Penalties under Section 78:
The appellant argued that no penalty should be imposed as there was no suppression of facts. The Tribunal upheld the imposition of penalties, agreeing with the Commissioner (Appeals) that the appellant made deliberate mis-declarations and suppressed facts, thus justifying the penalties under Section 78.

Separate Judgments:
Technical Member’s Judgment:
The Technical Member upheld the Commissioner (Appeals)’s decision, including reimbursable expenses in the taxable value and invoking the extended period for limitation. The appeal was not allowed except on the issue of denial of Cenvat credit, which was remanded for verification.

Judicial Member’s Judgment:
The Judicial Member disagreed, holding that reimbursable expenses should be excluded from the taxable value subject to verification of agreements and invoices. The entire demand was found to be time-barred due to the lack of malafide intent, given the legal uncertainties and the appellant’s disclosures in their records.

Third Member’s Judgment:
The Third Member agreed with the Judicial Member, stating that reimbursable expenses could be excluded from the taxable value subject to verification. The extended period of limitation was not sustainable due to the legal ambiguities and the appellant’s maintenance of records. The appeal was allowed with consequential relief on the point of time bar.

Final Order:
In terms of the majority view, the impugned order was set aside, and the appeal was allowed with consequential relief on the point of time bar. The matter was remanded for verification regarding the denial of Cenvat credit.

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