2018 (2) TMI 403 - AT - Service Tax

Business Auxiliary Service - Short payment of service tax - whether reimbursable expenses are includible in the taxable value or not? - Held that - The facts make it clear that the amount impugned is reimbursable expenses on which service tax has been demanded - issue whether reimbursable expenses are to be included in the taxable value or not is settled by the decision in the case of Commissioner of Service Tax Versus M/s. Sangamitra Services Agency 2013 (7) TMI 862 - MADRAS HIGH COURT , where it was held that the amounts are not to be included in assessable value - demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability of a partner for service tax demand after dissolution of a partnership firm.
2. Inclusion of reimbursable expenses in the taxable value of services.

Issue 1: Liability of a partner for service tax demand after dissolution of a partnership firm:
The case involved a partnership firm, M/s. Jerry & Co., which was issued a show cause notice for short payment of service tax. The original authority held that the firm acted as a pure agent, and the proceedings were dropped. However, after the firm's dissolution, a show cause notice was issued to one partner, demanding service tax for a specific period along with interest and penalty. The appellant contended that as the firm was dissolved, the demand was not sustainable, as separate notices were not issued to each partner. The Revenue argued that since partners are jointly and severally liable and all assets and liabilities were taken over by a new entity, the notice to the firm was legal and sustainable.

Issue 2: Inclusion of reimbursable expenses in the taxable value of services:
The main consideration was whether reimbursable expenses should be included in the taxable value of services. The Commissioner confirmed the demand, stating that such expenses incurred during service provision should be included, unless incurred by a pure agent. The appellant argued that the earlier authority had deemed the demanded amount as reimbursable expenses not includible in the taxable value. The Tribunal referred to precedents like Intercontinental Consultants and Technocrats Pvt. Ltd. Vs. Union of India and Commissioner of Service Tax, Chennai Vs. Sangamitra Services Agency, concluding that the demand was unsustainable. The appeal was allowed, setting aside the impugned order with consequential relief.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the demand based on reimbursable expenses was unsustainable, following established legal precedents. The liability of a partner for service tax after dissolution of a partnership firm was also discussed, with the Tribunal providing detailed reasoning for setting aside the demand and allowing the appeal.