2019 (1) TMI 1118 - AT - Service Tax

Time Limitation - Valuation - Consulting Engineering Services - deduction of reimbursement and accommodation charges - Held that - A show-cause notice has already been issued to the appellants on 15.10.2004 on the issue of admissibility of deduction of reimbursement and accommodation charges. The department is well aware of the working model of the appellants. The appellants have also been submitting returns from time-to-time along with challans and bills. Therefore, invoking extended period is not justifiable in this case. On perusal of para 7 of the show-cause notice, it is seen that the show-cause notice states that the earlier show-cause notice was on the actual expenses incurred and reimbursed and not the once raised in the present show-cause notice. However, para 6 of the show-cause notice states that the word gross amount has been used to emphasize the fact that no deductions will be allowed in respect of any expenditure incurred by the consulting engineer. Therefore, it cannot be stated that the two show-cause notices are different and a new and emergent situation has arisen for invoking the extended period. Therefore, the contentions in the impugned show-cause notice and the orders as far as it relates to accommodation and other charges reimbursed, the department is not correct in extending the period of limitation. Valuation - inclusion of Withholding tax / TDS - appellants claim that the same were not collected by the appellant and it was merely added and deducted in the invoice for accounting purposes in the invoice. Therefore, it cannot be considered as part of taxable value - Held that - The Order-in-Original also did not give any findings on the same specifically. One more issue which is agitated in the impugned order is about whether the exemption contained in the Notification No.2/1999 dated 28.2.1999 is applicable to the appellants. The Ld. Commissioner (A) has contended that it is seen that as per the agreement is entered into between NHAI and he appellants in joint ventures with Consulting Engineers Group Ltd. Jaipur, the appellants are main party to the agreement and by no stretch of imagination they can claim themselves as sub consultants. Therefore, no abatement can be available. Receipt of remuneration in freely convertible foreign currency - Held that - It is not understood as to how Commissioner (A) has come to a conclusion that the same has been repatriated as no clear findings have been given on this issue. However, as per discussion above, a show-cause notice on the same issue being already issued to the appellants and the appellants submitting the returns along with bills and challans regularly, we find that department has not made a case for invoking the extended period. We are not looking into the above issue of includability of TDS and withholding tax and the exemption claimed by the appellants on freely convertible foreign exchange. However, while holding that accommodation and other reimburse charges are not includable in the assessable value of taxable service, we find that the entire show-cause notice is barred by limitation. The impugned order is set aside partly on merits and totally on limitation.

Summary

Issues:
1. Time-barred show-cause notice for service tax payment.
2. Inclusion of withholding tax and TDS in taxable value.
3. Applicability of exemption Notification No.2/99 dated 28.2.1999.
4. Repatriation of remuneration in freely convertible foreign currency.

Analysis:

Issue 1: Time-barred show-cause notice
The appellants argued that the show-cause notice was time-barred as a similar notice had been issued earlier, and the department was aware of the facts. They contended that the extended period cannot be invoked based on the judgments of Nizam Sugar Factory and Hyderabad Polymers. The appellants had been regularly paying service tax and filing returns, believing that reimbursement expenses were not taxable. Referring to CBEC clarification, they claimed a bona fide belief. The Tribunal found merit in the appellant's arguments, stating that the department failed to justify invoking the extended period, especially since the issue had been previously addressed. The Tribunal emphasized that the issue was no longer res integra based on the Supreme Court's decision in UOI vs. Intercontinental Consultants and Technocrats Pvt. Ltd.

Issue 2: Withholding tax and TDS inclusion
The appellants contended that withholding tax and TDS were not collected but added and deducted for accounting purposes. The Order-in-Original did not address this issue specifically. The Tribunal did not delve into this matter due to the show-cause notice being time-barred. Additionally, the department failed to make a case for invoking the extended period, leading to the exclusion of this issue from further consideration.

Issue 3: Exemption under Notification No.2/99
Regarding the exemption claimed under Notification No.2/99, the Commissioner (A) argued against its applicability, stating that the appellants could not be considered sub-consultants. However, the Tribunal did not delve into this issue due to the time-barred nature of the show-cause notice. The department's failure to justify invoking the extended period led to the exclusion of this issue from detailed consideration.

Issue 4: Repatriation of remuneration in foreign currency
The Commissioner (A) held that the exemption was not applicable if the remuneration received was repatriated back. However, the Tribunal found a lack of clear findings on this issue and refrained from further examination due to the time-barred nature of the show-cause notice. The department's failure to justify invoking the extended period led to the exclusion of this issue from detailed consideration.

In conclusion, the Tribunal allowed the appeal, setting aside the impugned order partly on merits and entirely on limitation, emphasizing the time-barred nature of the show-cause notice and the lack of justification for invoking the extended period.