2018 (6) TMI 1358 - AT - Service Tax

Liability of service tax - reimbursable expenses collected from the customers were higher than the expenses actually incurred by them - maintenance of separate records for service tax as per rule 5 of STR - whether amounts collected in excess were also liable to be included in the taxable value? - Held that - This issue is no more res integra and has been settled by the Apex Court in the case of UOI Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. 2018 (3) TMI 357 - SUPREME COURT OF INDIA , where it was held that only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax - demand do not sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against rejection of appeal by Commissioner(Appeals) - Discrepancy in service charges collected and shown in ST3 returns - Allegation of maintaining separate records for service tax - Escaped assessment of taxable value - Demand of service tax, interest, and penalty.

Analysis:
The appeal was filed against the order of the Commissioner(Appeals) rejecting the appellant's appeal. The discrepancy arose when service charges collected were higher than those shown in ST3 returns. The appellant explained that excess amounts collected were due to higher reimbursable expenses from customers. These excess amounts were accounted as service charges without paying service tax. The allegation included failure to maintain separate records for service tax, resulting in an escaped assessment of taxable value amounting to ?49,09,904/- for the financial years 31/03/2001 to 31/03/2004. The original authority allowed a deduction for expenses incurred by the appellant but demanded service tax of ?2,19,397/- under Section 73 of the Finance Act, 1994, with interest under Section 75 and imposed a penalty under Section 78 for furnishing incorrect value in ST3 returns.

The appellant argued that the impugned order was contrary to facts and binding judicial precedent. They cited an instruction by the Ministry of Finance and referred to a Supreme Court judgment regarding the inclusion of reimbursable expenses in the valuation of taxable services. The Supreme Court held that reimbursable expenses form part of the 'gross amount charged' under Rule 5 of the Service Tax Rules. The Court emphasized that rules cannot exceed the statute and must align with the Act's provisions. The legislature later amended the Act to include reimbursable expenses in the valuation of taxable services from May 14, 2015. Considering the Supreme Court's ruling, the Tribunal found the impugned order unsustainable and set it aside, allowing the appeal of the appellant.

In conclusion, the Tribunal found in favor of the appellant, setting aside the impugned order of the Commissioner(Appeals) based on the Supreme Court's interpretation of the inclusion of reimbursable expenses in the valuation of taxable services. The Tribunal emphasized the alignment of rules with statutory provisions and the subsequent legislative amendment to include such expenses in the valuation. The decision highlighted the importance of statutory compliance and the need for rules to be consistent with legislative intent.