2023 (5) TMI 523 - AT - Service Tax

Valuation - inclusion of reimbursement of expenses - expenditure incurred towards hotel stay, school tuition fees for the disputed period considering the same as part of the consideration paid for import of manpower services - period April 2015 to June 2017 - HELD THAT - The issue of payment of service tax on secondment has been settled by the Supreme Court in the case of C.C.,C.E. S.T. BANGALORE (ADJUDICATION) ETC. VERSUS M/S NORTHERN OPERATING SYSTEMS PVT LTD. 2022 (5) TMI 967 - SUPREME COURT . The issue is whether reimbursable expenses are includible in the gross value for levy of service tax. The issue is no longer res integra. The Hon ble High Court of Delhi in the case of INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. VERSUS UOI. ANR. 2012 (12) TMI 150 - DELHI HIGH COURT held that reimbursements of amounts it received cannot be charged to service tax. This issue with regard to non-payment of service tax on the reimbursable expenses travelled upto Hon ble Apex Court wherein it got settled by the decision in the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT The Apex Court has held as per Section 67 (un-amended prior to 1st May, 2006) or after its amendment with effect from 1st May, 2006, the only possible interpretation of the said Section 67 is that for the valuation of taxable services for charging service tax, the gross amount charged for providing such taxable services only has to be taken into consideration. Any other amount which is not for providing such taxable service cannot be the part of the said value. It was clarified that the value of service tax cannot be anything more or less than consideration paid as quid pro quo for rendering such services. Accordingly, it was held that Section 67 of Finance Act, 1994 do not allow inclusion of reimbursable expenses in valuation of service rules. Appeal allowed.

Summary

Issues:
The issues involved in the judgment are the challenge to the Order-in-Original dated 26.11.2020 passed by the Commissioner, with one appeal filed by the Appellant against the demand confirmed along with interest and penalty, and another appeal filed by the Department challenging the dropping of the service tax demand.

Appellant's Challenge:
The Appellant, having its registered office in Delhi, entered into an agreement with its holding company for providing services on a cost plus mark-up basis. The Appellant employed employees of the holding company on secondment basis and entered into a salary reimbursement agreement. The impugned show cause notice demanded service tax on expenditure incurred towards various services, considering them part of the consideration paid for import of manpower services. The Appellant challenged the demand of service tax, arguing that the arrangement does not fall under the definition of 'service' under the Finance Act.

Legal Arguments:
The Appellant argued that the expenses incurred in India, including reimbursement of school tuition fees, should not form part of the taxable service value for service tax under reverse charge mechanism. They cited legal precedents and decisions to support their stance, emphasizing that expenses incurred by the service recipient are not liable to be included in the value of taxable service for service tax purposes.

Precedents and Rulings:
The Appellant relied on various decisions and rulings, including those by the Hon'ble Supreme Court and CESTAT, to support their argument regarding the taxability of secondment of manpower and the non-inclusion of reimbursable expenses in the taxable service value for service tax purposes.

Extended Period of Limitation:
The Appellant's counsel contended that the extended period of limitation and penalty under relevant sections cannot be invoked in the present case, as the necessary ingredients for invoking them are absent.

Department's Argument:
The Department's authorized representative argued that the gross amount charged for service tax purposes should include any form of payment, as per the relevant provisions of the Act. They highlighted the inclusion of non-monetary consideration in the taxable value as specified under section 67(1)(i) of the Act.

Judgment and Rationale:
The Tribunal noted that the issue of payment of service tax on secondment had been settled by the Supreme Court, and the inclusion of reimbursable expenses in the gross value for service tax levy was not permissible. Referring to relevant legal provisions and precedents, the Tribunal allowed the Appellant's appeal and dismissed the Department's appeal, emphasizing that only the consideration paid for the taxable service should be evaluated for service tax purposes.

Conclusion:
In conclusion, the Tribunal allowed the Appellant's appeal challenging the service tax demand and dismissed the Department's appeal, based on the settled legal principles and interpretations regarding the valuation of taxable services for service tax purposes.