2018 (3) TMI 1491 - AT - Service Tax

Valuation - inclusion of reimbursable expenses - EPF and ESI contribution - whether the appellant is liable to pay service tax on the amount of EPF and ESI contribution which are reimbursed to them in the course of providing security agency services to their clients? - Held that - the PF and ESI contributions are statutory contributions and/or statutory levy and the same are deductible under the provisions of Section 67 (3) of the Finance Act, 1994 - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability to pay service tax on EPF and ESI contributions reimbursed to the appellant in the course of providing security agency services.

Analysis:
The appeal in question dealt with the issue of whether the appellant is liable to pay service tax on the EPF and ESI contributions reimbursed to them while providing security agency services. The appellant had informed the authorities that they were raising bills to their clients based on salary/wages, relieving charges, administrative charges, and PF/ESI contributions. The Revenue contended that PF and ESI contributions were not eligible for abatement and proposed to levy service tax on these amounts separately shown in the bills. The Order-in-Original confirmed the demand for service tax, penalty under Section 78, and additional penalty under Section 76, which was later modified by the Commissioner (Appeals). The appellant challenged this decision before the Tribunal, arguing that the order was in conflict with the decision of the Hon'ble Allahabad High Court in a previous case involving the same circular.

The appellant's counsel highlighted that the circular forming the basis of the Revenue's case had been subject to litigation in the appellant's previous case before the High Court, where it was clarified that service tax could be charged on the gross amount after abatement for statutory levies directly related to services rendered. The Tribunal observed that the impugned order conflicted with the High Court's decision in the appellant's previous case, where it was held that PF and ESI contributions are statutory and deductible under the Finance Act. The Tribunal distinguished a previous ruling in Laxmi Construction, stating it was overruled by the High Court's decision. Consequently, the Tribunal allowed the appeal, setting aside the impugned order and granting the appellant consequential benefits in accordance with the law.

In conclusion, the Tribunal's decision was based on the interpretation of statutory contributions like EPF and ESI in relation to service tax liability for security agency services. The judgment emphasized the precedence of the High Court's clarification on abatement for statutory levies and deductions under the Finance Act, ultimately ruling in favor of the appellant and overturning the lower authorities' decision.