2023 (12) TMI 684 - AT - Service Tax

Valuation - inclusion of reimbursement of expenses - Demand of service tax by invoking the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act with interest under section 75 of the Finance Act and penalties under sections 77(1) and 78 of the Finance Act. Whether the Commissioner committed an error in confirming the demand of service tax when, according to the appellant, service tax had been paid on all the collections received during the relevant period? - HELD THAT - The Commissioner failed to properly appreciate the nature of the refundable security deposits. The appellant was required to provide infrastructure to the customers, for which the appellant had taken premises on lease from third party suppliers. These suppliers had taken refundable security deposits from the appellant and the appellant recouped the refundable security deposits from the customers. This was a back to back arrangement. Under section 67(1) of the Finance Act the gross amount charged is for service provided or to be provided. The returnable security deposits are collected for business reasons by the service providers during the subsistence of the contract and they are refunded to the recipient when the contract is completed/terminated. This amount, therefore, cannot be for services and service tax would not be leviable - The submission advanced by the learned counsel for the appellant also deserves to be accepted. The amount collected as imprest from the customers is towards various expenditure incurred during the provision of services such as hotel, food and telephone bills. This expenditure or costs incurred by the service provider in the course of providing the taxable service cannot be considered as the gross amount charged by the service provider for such service provided by him, and accordingly not taxable under section 67 - it is not possible to sustain the demand confirmed by the Commissioner. The penalty and interest, therefore, cannot also be sustained. It would, therefore, not be necessary to examine the contention raised by the learned counsel for the appellant that the extended period of limitation could not have been invoked in the facts and circumstances of the case. The order dated 03.10.2022 passed by the Commissioner, therefore, cannot be sustained and is set aside - Appeal allowed.

Summary

Issues Involved:
1. Service tax on advances.
2. Non-intimation of adjustment of service tax.
3. Invocation of the extended period of limitation.
4. Imposition of penalty and interest.

Summary:

1. Service Tax on Advances:
The appellant argued that service tax had already been paid on all collections received during the relevant period, and the year-end balance was merely a closing figure, not an advance. The Tribunal accepted this argument, noting that the year-end balance does not represent the advance received during the year. The Tribunal also referenced a Chartered Accountant's certificate verifying that service tax had been paid on the collections received, which the Commissioner had unjustly dismissed.

2. Non-intimation of Adjustment of Service Tax:
The appellant claimed an adjustment of excess service tax paid during earlier periods, which the Commissioner denied due to a lack of intimation to the department. The Tribunal found this to be a procedural lapse and held that substantial benefits should not be denied for such lapses. It referenced the decision in Plantech Consultants Pvt. Ltd., emphasizing that adjustments declared in ST-3 returns suffice as intimation.

3. Invocation of the Extended Period of Limitation:
The Tribunal did not find it necessary to examine the invocation of the extended period of limitation, as the primary demands were not sustainable.

4. Imposition of Penalty and Interest:
Given the Tribunal's findings that the primary demands were unsustainable, the penalties and interest imposed by the Commissioner were also set aside.

Conclusion:
The Tribunal set aside the order dated 03.10.2022 passed by the Commissioner, thereby allowing the appeal. The Tribunal emphasized that procedural lapses should not negate substantial rights and that the year-end balance does not constitute advances subject to service tax.