2019 (3) TMI 189 - AT - Service Tax

Valuation - inclusion of reimbursement expenses in assessable value - payment made by the respondent to M/s. Morarji international, Italy on account of reimbursement of charges made by the said Morarji international in the year 2006-07 towards staff cost, insurance, travelling, conveyance, communication etc. - Held that - The issue is no longer res Integra - the issue has been decided by the Hon ble Supreme Court and Delhi High Court in the case of Inter- Continental Consultants and Technocrats Pvt. Ltd. 2012 (12) TMI 150 - DELHI HIGH COURT - Hon ble Supreme Court 2018 (3) TMI 357 - SUPREME COURT OF INDIA has categorically held that service tax is to be paid only on the services actually provided by the service provider. There is no dispute, as regards the excludability of reimbursement expenses from the service tax - However, in the instant case the original authority has given a finding that the respondent did not give any bifurcation or prove that these expenses were relating to reimbursement of expenses made by the respondent to their international company in Italy. Allegation was that the balance sheet for the year 2006-07 has shown a lump sum amount of payment by the respondent to their sister concern. No bifurcation was showed - it will be in the interest of justice that the matter goes back to the original authority to calculate the quantum of such payments and deduct them from the amounts on which service tax is payable - appeal allowed by way of remand.

Summary

Issues:
Whether service tax is payable on payments made by respondent to their international concern in Italy for reimbursement of expenses incurred for staff cost, insurance, travelling, conveyance, communication, etc.

Analysis:
1. The case involves an appeal filed by the Revenue against an order-in-appeal passed by the Commissioner of (Appeals) Service Tax, Mumbai. The respondent, a company, availed services from their international concern in Italy, and made payments for business auxiliary services. An audit revealed certain payments to their sister concern in Italy, leading to a show cause notice for service tax evasion.

2. The Revenue contended that the respondent failed to provide evidence for claiming the payments as reimbursement of expenses. They argued that the chargeability of service tax depends on the correct classification of expenses, and the Commissioner did not address this aspect adequately.

3. The Revenue filed an appeal stating that the respondent's balance sheet showed a significant expenditure in foreign currency for marketing fees and sales commission. The department emphasized that the value of taxable services is based on the actual consideration charged, and the correct classification of expenses is crucial for determining the chargeability of service tax.

4. The department's representative reiterated the findings and relied on a case law emphasizing that reimbursement arises when a person pays on behalf of another without obligation.

5. The respondent's counsel argued that the services were provided to the respondent's subsidiary in Italy, not in India, hence no tax was payable. They cited legal precedents supporting their position and claimed the issue was revenue-neutral and time-barred.

6. The Tribunal examined the issue and referenced judgments by the Supreme Court and Delhi High Court, emphasizing that service tax is levied only on services actually provided. They highlighted the importance of distinguishing between expenses for providing taxable services and other expenses. The Tribunal found that while reimbursement expenses are generally excluded from service tax, the respondent failed to prove the nature of payments made to their international concern in Italy.

7. Consequently, the Tribunal remanded the case to the original authority for recalculating the service tax liability after deducting amounts claimed as reimbursement of expenses. The respondent was directed to provide all necessary evidence to support their claim of reimbursement.

8. In conclusion, the appeal of the Revenue was allowed for remand, emphasizing the importance of proving expenses as reimbursement to exclude them from service tax liability. The respondent was instructed to cooperate with the original authority and provide documentary evidence for proper assessment.