2018 (3) TMI 553 - AT - Service Tax

Valuation - includibility - reimbursable expenses - Held that - the issue whether reimbursable expenses are includible in the taxable value of services stands settled by the decision of the Hon ble High Court of Madras in the case of Commissioner of Service Tax, Chennai Vs. Sangamitra Services Agency 2013 (7) TMI 862 - MADRAS HIGH COURT , where it was held that if a receipt is for reimbursing the expenditure incurred for the purpose, the mere act of reimbursement, per se, would not justify the contention of the Revenue that the same, having the character of the remuneration or commission, deserves to be included in the sum amount of remuneration / Commission - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Inclusion of reimbursable expenses in the taxable value of services.
2. Validity of demand for service tax for a specific period.
3. Imposition of penalties under section 78 of the Finance Act, 1994.

Issue 1: Inclusion of Reimbursable Expenses in Taxable Value of Services

The appellants, a partnership firm providing clearing and forwarding services, were alleged to have collected commission and reimbursement for expenses from clients. The show cause notice demanded service tax for a period invoking the extended limitation period, claiming that the reimbursable expenses were not included in the taxable value of services for tax liability discharge. The original authority confirmed the demand, interest, and penalties. The Commissioner (Appeals) remanded the issue for fresh adjudication to analyze the inclusion of reimbursable expenses in the taxable value. The Commissioner (Appeals) found that expenses reimbursed for freight, octroi, and salary are not includible in the value of services. The adjudicating authority, based on Tribunal decisions, dropped the proceedings. However, a notice was issued under section 84 of the Finance Act, 1994, confirming the demand and imposing penalties.

Issue 2: Validity of Demand for Service Tax

The Tribunal, after hearing both sides, referred to the decision of the Hon’ble High Court of Madras and a Tribunal case, concluding that actual expenses with mark-up are not to be included in the taxable value of services for service tax discharge. Relying on these precedents, the Tribunal found the demand unsustainable and set aside the impugned order, allowing the appeal with consequential relief if any.

Issue 3: Imposition of Penalties under Section 78 of the Finance Act, 1994

The penalties imposed under section 78 of the Finance Act, 1994 were a subject of contention. The Tribunal's decision to set aside the demand also nullified the penalties imposed, as the demand itself was deemed unsustainable due to the exclusion of reimbursable expenses from the taxable value of services. Consequently, the appeal was allowed with consequential relief if applicable, marking the end of the legal battle for the appellants.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT CHENNAI highlights the key issues, the arguments presented, and the final decision rendered by the Tribunal, providing a comprehensive understanding of the legal implications involved in the case.