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2021 (12) TMI 242 - AT - Service TaxValuation - inclusion of reimbursable expenses in the gross value of the for determination of the value of taxable service - period involved is upto March 2015 - HELD THAT - In the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT referred to by the learned Counsel, Supreme Court while upholding the order of Hon ble Delhi High Court quashing Rule 5 of Service Tax Valuation Rules, 2006 has 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. It is found that the issue in respect of the reimbursable expenses has been considered and decided by the Hon ble Apex Court for the period prior to amendments made in 2015, and we are concerned with same issue for the period prior to 2015, there are no merits in the impugned order. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Inclusion of reimbursable expenses in the gross value of services for service tax determination. 2. Validity of service tax demands and penalties imposed for the periods 2008-2013, 2013-2014, and 2014-2015. 3. Applicability of the Supreme Court's decision in Intercontinental Consultants and Technocrats case. 4. Interpretation of "pure agent" under Rule 5(2) of the Service Tax Valuation Rules, 2006. Detailed Analysis: 1. Inclusion of Reimbursable Expenses in Gross Value of Services: The core issue was whether reimbursable expenses should be included in the gross value of services for determining service tax liability. The Commissioner held that the appellant, a holding company, procured various input services for its 23 group companies and allocated these costs through debit notes. The Commissioner asserted that these transactions constituted "Business Support Services" and thus, service tax was leviable on the reimbursable expenses as part of the gross amount charged. 2. Validity of Service Tax Demands and Penalties: The Commissioner confirmed service tax demands and imposed penalties for three periods: - 2008-2013: ?8,65,45,559/- confirmed, with interest and a penalty of equal amount under Section 78, and ?10,000/- under Section 77 for incorrect taxable value declaration. - 2013-2014: ?3,56,82,777/- confirmed, with interest and a penalty of ?35,68,278/- under Section 76, and ?10,000/- under Section 77. - 2014-2015: ?6,84,41,986/- confirmed, with interest and a penalty of ?68,44,199/- under Section 76, and ?10,000/- under Section 77. 3. Applicability of Supreme Court's Decision in Intercontinental Consultants and Technocrats Case: The appellant argued that the issue of including reimbursable expenses in the gross value of services had been settled by the Supreme Court in the Intercontinental Consultants and Technocrats case. The Supreme Court had ruled that prior to the 2015 amendments, Rule 5 of the Service Tax Rules was not in consonance with Section 67 of the Finance Act, 1994. The Tribunal agreed with this argument, noting that the Supreme Court had held that reimbursable expenses could not be included in the taxable value of services before the 2015 amendments. 4. Interpretation of "Pure Agent" under Rule 5(2) of the Service Tax Valuation Rules, 2006: The Commissioner rejected the appellant's claim of acting as a "pure agent" for its group companies, stating that the appellant did not meet the conditions specified under Rule 5(2). The Commissioner concluded that the appellant had provided "Business Support Services" and thus, service tax was applicable on the reimbursable expenses. However, the Tribunal found that the Supreme Court's decision in the Intercontinental Consultants and Technocrats case negated this interpretation for the period before 2015. Conclusion: The Tribunal concluded that the issue of reimbursable expenses had been settled by the Supreme Court, and since the period in question was prior to the 2015 amendments, the inclusion of these expenses in the taxable value was not justified. Consequently, the Tribunal set aside the impugned order and allowed the appeal, nullifying the service tax demands and penalties imposed for the periods 2008-2013, 2013-2014, and 2014-2015.
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