2018 (12) TMI 1293 - AT - Service Tax

Levy of Service Tax - Reimbursement of service tax by service recipient - demand alongwith interest and penalty - extended period of limitation - Held that - As per Chapter V of the Finance Act, 1994, the service tax has to be levied on the gross amount charged for the service. Wherever the gross amount charged includes service tax, the amount so charged is taken as cum-tax amount and the tax is calculated backwards - In this case, the amount received by the appellant was much higher than what they have disclosed to the department as a result of their re-negotiation with their clients and hence the differential duty arose. It is also evident that appellant has not disclosed the facts of their re-negotiation with their client and that they are getting over and above the amount initially agreed upon. Therefore, there was clear suppression of fact with intent to evade duty. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Whether reimbursement of service tax by the service recipient can be considered as additional consideration?
2. Whether the appellant had the intention to evade service tax liability justifying the invocation of the extended period of demand and imposition of penalties and interest?

Analysis:
1. The appellant, a partnership firm engaged in removal of overburden for a company, had a disagreement with the tax department regarding the payment of service tax. The appellant initially considered the amount received from the company, which included all taxes, as a cum-duty amount and paid tax accordingly. Subsequently, the appellant renegotiated with the company, and it was agreed that 90% of the service tax paid by the appellant would be reimbursed. The tax department issued show cause notices alleging that the appellant failed to pay service tax on the additional amount received and contravened tax provisions. The Commissioner confirmed the demand and imposed penalties. The appellant contended that the reimbursement should not be considered as additional consideration and cited legal precedents. However, the department argued that the appellant failed to disclose the renegotiation with the company, leading to evasion of duty. The tribunal held that the appellant's failure to disclose the renegotiation and the increased amount received constituted suppression of facts to evade duty, upholding the demand and penalties imposed.

2. The tribunal considered the arguments from both sides and examined the records. It noted that as per the Finance Act, service tax is levied on the gross amount charged for the service. In this case, the appellant received a higher amount due to renegotiation with the company, which was not disclosed to the tax authorities. The tribunal found that the appellant's actions did not align with the legal interpretation that reimbursements are not subject to service tax. It concluded that the appellant suppressed facts with the intent to evade duty by not disclosing the renegotiation details and the increased amount received. Therefore, the tribunal upheld the demand and penalties imposed by the Commissioner. The appeals were rejected, and the impugned orders were upheld.

In conclusion, the tribunal's decision emphasized the importance of full disclosure of relevant facts to tax authorities and upheld the demand and penalties imposed on the appellant for failing to pay service tax on the additional amount received after renegotiation with the service recipient.