2021 (4) TMI 1092 - HC - Service Tax

Revenue neutrality - issue is revenue neutral without involving of any out flow of net tax to the Government - suppression with intent to evade tax or not - extended period of limitation - reimbursement of actual expenses paid to another service provider - service also ought to have been provided by the appellant - pure agent services - omission to mention certain details in the periodical returns to be filed with the authorities - constitutes evidence of suppression of facts with a deliberate and wilful intention to evade tax or not. When actual expenses paid to another service provider are reimbursed by the service receiver, can still the authorities hold that that service also ought to have been provided by the appellant and therefore, the charges in this regard cannot be excluded as charges paid in the capacity as a 'Pure Agent'? - HELD THAT - The issue was held in favour of the assessee in a decision of the Hon'ble Supreme Court in UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT where it was held that Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with consideration is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, 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. As this issue is decided in favor of assessee, other issues becomes irrelevant to be considered - appeal allowed - decided in favor of assessee.

Summary

Issues:
1. Interpretation of Section 35G of the Central Excise Act, 1944 regarding appeals against the order of the Customs, Excise & Service Tax Appellate Tribunal.
2. Determination of substantial questions of law related to tax evasion, reimbursement of expenses, and omission of details in periodical returns.
3. Application of the decision in Union of India vs. Intercontinental Consultants and Technocrats Pvt. Ltd., [2018 (10) G.S.T.L. 401 (SC)] to the present case.

Issue 1: Interpretation of Section 35G of the Central Excise Act, 1944
The appeals were filed under Section 35G of the Central Excise Act, 1944, challenging the order of the Customs, Excise & Service Tax Appellate Tribunal. The Honorable Justices T.S.Sivagnanam and R.N.Manjula heard the appeals, which were admitted based on substantial questions of law raised by the appellant.

Issue 2: Determination of Substantial Questions of Law
The substantial questions of law raised in the appeals included whether suppression with intent to evade tax could be found in a revenue-neutral situation, the treatment of expenses reimbursed by a service receiver, and whether omission of details in periodical returns constituted evidence of tax evasion. The Court focused on the second question, which had a direct impact on the other two questions.

Issue 3: Application of Precedent
The Court referred to the decision in Union of India vs. Intercontinental Consultants and Technocrats Pvt. Ltd., [2018 (10) G.S.T.L. 401 (SC)], which clarified the treatment of reimbursable expenses in the valuation of taxable services for tax purposes. The Court emphasized that the value of taxable services should be based on the consideration paid for the service provided, as per Section 67 of the Act.

The Court analyzed the relevant provisions of the Act and the Rules to determine that the valuation of taxable services should align with the consideration paid for the services rendered. The judgment emphasized that rules cannot go beyond the statute and must align with the legislative intent. The Court highlighted that the legislature's amendment to include reimbursable expenses in the valuation of taxable services supported this interpretation.

Based on the precedent and interpretation of the law, the Court ruled in favor of the assessee on the second substantial question of law. As a result, the first and third questions became irrelevant, and the appeals were allowed in favor of the assessee. The Court did not find merit in the appeals challenging the interpretation of the law and dismissed them accordingly.

This detailed analysis of the judgment highlights the Court's thorough examination of the legal issues involved and the application of relevant legal principles to reach a decision in the case.