2017 (12) TMI 24 - AT - Service Tax

Valuation of services - advertising service - reimbursement charges - includibility - claim of the appellant that these were reimbursed on actual basis and are to be excluded from taxable value in terms of Section 67 read with N/N. 12/2003-ST dated 20.06.2003 was not accepted by the Revenue - Held that - valuation of taxable service in terms of Section 67 can be with reference to service, if there were purchase and sale of goods as evidenced by the documents, the same cannot form part of taxable value for service. The situation is covered by N/N. 12/2003 dated 20.06.2003. We note that in para 10 of the original order, the factual position, as examined by original authority has not been countered in the impugned order. It is clear that the original authority has examined purchase bills / invoices for reimbursement raised to the client Recording that there are clear distinctions between invoices raised for services and invoices raised for reimbursements. Section 67 can bring the valuation of taxable service only with reference to service. In the evidence available in the present appeal that these were reimbursements, which are on actual basis in terms of agreement with the clients and are known to the parties, the same are not to be brought in for taxable purpose under Section 67. Appeal allowed - decided in favor of appellant.

Summary

Issues: Valuation of service for service tax purposes, applicability of pure agent concept, interpretation of Section 67 of the Finance Act, 1994, relevance of Valuation Rules, 2006, and Notification No.12/2003-ST dated 20.06.2003.

In this case, the dispute revolves around the valuation of services provided by the appellant for service tax purposes. The Revenue contended that all charges incurred by the appellant, including reimbursable expenses, should be considered for tax purposes under Section 67 of the Finance Act, 1994. The appellant argued that expenses reimbursed by clients on a cost basis should be excluded from taxable value, supported by actual purchase documents and contractual arrangements. The Commissioner (Appeals) reversed the original authority's decision, rejecting the exclusion of such expenses and holding the appellant liable for Service Tax on the gross amount without abatement. The appellant further contended that the concept of pure agent should apply, even for the period before the introduction of Valuation Rules in 2006.

Upon examination, the Tribunal noted that the concept of pure agent, introduced under Rule 5 of Service Tax Valuation Rules, 2006, does not apply to the period before the notification of these rules. The Tribunal emphasized that the valuation of taxable services under Section 67 should consider only services rendered, excluding purchase and sale of goods unless evidenced by documents. The Valuation Rules, effective from 19.04.2006, aimed to provide clarity on valuation but did not introduce specific exclusions previously taxed under Section 67. The core principle of Section 67, emphasizing the gross amount charged for services, remained consistent. The Tribunal highlighted that the introduction of Valuation Rules did not alter the fundamental valuation concept.

Moreover, the Tribunal referenced Notification No.12/2003 dated 20.06.2003, emphasizing that the original authority's analysis, distinguishing between service invoices and reimbursement invoices, was valid. The original authority correctly concluded that tax liability should only relate to service charges, excluding reimbursable expenditures supported by documents. The Tribunal rejected the Revenue's argument that the introduction of Valuation Rules would change the valuation concept under Section 67, affirming that taxable service valuation should focus on the service itself. As the reimbursable expenses were based on actual agreements with clients and supported by evidence, they were deemed non-taxable under Section 67.

In conclusion, the Tribunal found the original order's analysis appropriate, setting aside the impugned order and allowing the appeal in favor of the appellant. The judgment emphasizes the importance of distinguishing between service charges and reimbursable expenses in the valuation of taxable services, in line with the provisions of Section 67 and relevant notifications.