2023 (9) TMI 71 - AT - Service Tax

Valuation - expenditure or costs incurred by the service provider shall be treated as consideration for the taxable service provided and shall be included in the value for the purpose of charging service tax or not - pure agency services - Rule 5(1) of the valuation Rules - suppression of facts or not - extended period of limitation - HELD THAT - Service provider has not acted as a pure agent for the service recipient within the meaning provided in Explanation 1 to Rule 5(2) of Valuation Rules. Service provider further not fulfilled the conditions detailed in Rule 5 (2) of the valuation Rules. It is beyond doubt that in order to exclude expenditures or costs incurred by the service provider, they should have acted as a pure agent and the condition detailed in Rule 5 (2) of the valuation Rules were required to be followed in principle. The benefits are considerable and substantial and therefore, condition have to necessarily be fulfilled in order to exclude the costs and expenditure, which is not the case here - Therefore, there is no question of excluding any amount from the total taxable value received by the Service provider from the service recipient on any count. The adjudicating authority has not taken into cognizance the provisions of Rules 5(1) and 5(2) of the Service Tax valuation Rules. From a perusal of the activity undertaken by the appellant, it is seen that the appellant had only paid the amount / charges on behalf of their clients to respective service providers and their clients reimbursed the charges to the appellant. The said transactions of appellant do not fall under Support Service of Business or commerce . Demand on difference between the amounts received from the client as reimbursable expenses and the amount spent/ incurred - HELD THAT - The demand is not sustainable - Once the Ld. Commissioner hold that the reimbursable part of expenses is not taxable, then there is no legal basis to confirm the service tax on differential amount under Support Service of Business or Commerce . Further, there is no evidences on records to establish that the said difference amount are pertaining to the service provided by the appellant - the service tax demand confirmed by the Ld. Commissioner on difference amount is not sustainable and we set aside the same. Taxability of Ocean Freight and reimbursement expenses - HELD THAT - The issue involved herein is purely of interpretation of law about valuation and taxability of the service. It is also fact that the appellant have been submitting all the documents details to the department. In this fact no malafied intention can be alleged against the appellant - since there is no suppuration of fact or malafied intention to evade payment of service tax, demand for the extended period shall not be sustainable also on the ground of limitation. The demand is set aside not only on merit but also on limitation for the period which is beyond normal period of limitation - the impugned order confirming service tax demand cannot be sustained and need to be set aside - Appeal filed by assessee is allowed.

Summary

Issues Involved:
1. Taxability under "Business Auxiliary Service" (BAS) and "Support Services of Business or Commerce" (BSS).
2. Inclusion of reimbursable expenses in the value of taxable services.
3. Validity of the show cause notice (SCN) and the impugned order.
4. Invocation of the extended period of limitation.

Summary:

1. Taxability under BAS and BSS:
The appellant, M/s. Star Freight Pvt. Ltd., contested the demand of Service Tax of Rs. 34,56,764/- under BAS and BSS on various charges such as incentive charges, Ocean Freight, Air Freight, and others. The appellant argued that these activities do not fall under the definitions of BAS or BSS as per Section 65 of the Finance Act, 1994. The Tribunal found merit in the appellant's contention that the Department failed to specify the exact clause under which the services were taxable. It was held that without specifying the activity and the nature of service, the demand cannot be confirmed.

2. Inclusion of Reimbursable Expenses:
The Tribunal addressed the Revenue's appeal which argued that all expenditure or costs incurred by the service provider should be included in the value for charging service tax as per Rule 5(1) and 5(2) of the Service Tax Valuation Rules, 2006. However, the Tribunal noted that the Hon'ble Supreme Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. held Rule 5 to be ultra vires to Section 67. Therefore, the Tribunal found no merit in the Revenue's appeal.

3. Validity of SCN and Impugned Order:
The Tribunal emphasized the necessity for the Department to specify the exact service being taxed. It was observed that the SCN and the impugned order did not mention any specific sub-clause under Section 65(19) of the Finance Act, 1994. Citing precedents, the Tribunal held that the demand is not sustainable due to the vagueness of the SCN and the impugned order.

4. Invocation of Extended Period of Limitation:
The Tribunal noted that the issue involved was purely of interpretation of legal provisions and there was no evidence of suppression or intent to evade tax by the appellant. Given that the appellant had provided all necessary details to the department, the Tribunal ruled that the extended period of limitation was not invokable. The demand for the extended period was set aside on grounds of limitation.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, M/s. Star Freight Pvt. Ltd., with consequential relief as per law and dismissed the Revenue's appeal. The impugned order confirming the service tax demand was set aside on both merits and limitation grounds.