2025 (2) TMI 615 - AT - Service Tax

Levy of service tax - various charges and receipts by a Customs House Agent (CHA) - taxability of reimbursable expenses - categorization of certain receipts under Business Auxiliary Services - invocation of extended period of limitation. Taxability of reimbursable expenses - HELD THAT - The issue is no more res-integra in view of the decision of the Honourable Supreme Court in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd 2018 (3) TMI 357 - SUPREME COURT which has considered the issue of liability to pay service tax on reimbursable expenses received by the service provider in the course of rendering services for the client apart from the consideration received for rendering the services on which the client has discharged the liability to pay service tax. The Honourable Supreme Court affirmed the decision of the Delhi High Court in Intercontinental Consultants Technocrats Pvt Ltd v UOI 2012 (12) TMI 150 - DELHI HIGH COURT wherein Rule 5(1) of the Service Tax Valuation Rules 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services in the value of such taxable services was struck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections - the findings and confirmation of demand under the nomenclature reimbursable expenses as made in the impugned order in original cannot sustain. Levy of service tax with respect to freight/rebate/brokerage/operational surplus as CHA service - HELD THAT - The learned adjudicating authority has rendered a specific finding in the OIO that rebate and brokerage amount received by the appellants are not liable under CHA service. However that does not translate into a sanction for the learned adjudicating authority to unilaterally confirm the demand on these services under business auxiliary service for the aforementioned period without putting the appellants to notice about the adjudicating authority s said intention to do so - in any event the finding of the adjudicating authority that rebate and brokerage received by the appellants are liable to be taxed under Business Auxiliary Service for the period 2006-07 2007-08 and 2008-09 and the consequent confirmation of demand is liable to be set aside as such a finding travel beyond the proposals in the SCN. Extended period of limitation - penalties - HELD THAT - The ingredients to invoke the extended period was absent. There is no evidence let in of any positive act of suppression or wilful misstatement with intent to evade payment of service tax on the part of the appellant and thus the ingredients required to invoke extended period of limitation has not been established by the Department. There are force in the contentions of the learned counsel for the appellant that the issues involved were of interpretational nature and therefore the allegation of malafides made to invoke the extended period of limitation and impose penalties are untenable. Conclusion - i) The reimbursable expenses are not part of the taxable value. ii) The profits from the sale and purchase of cargo space are not taxable under Business Auxiliary Services as these are principal-to-principal transactions. iii) There are no grounds for invoking the extended period of limitation as the Department failed to establish any fraudulent intent or suppression of facts by the appellant. The impugned order in original is set aside and the appeal is allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment were:

• Whether the appellants were liable to pay service tax on reimbursable expenses under the category of Custom House Agent (CHA) services and whether such expenses qualify as consideration for services rendered.
• Whether the amounts received as freight rebate, brokerage, and incentives/commission, particularly in the context of freight forwarding activities, were taxable under Business Auxiliary Services.
• The applicability of the extended period of limitation for the demand of service tax and the imposition of penalties under the Finance Act, 1994.
• Whether the adjudicating authority's confirmation of demand under Business Auxiliary Services for certain periods was valid, given the proposals in the Show Cause Notices (SCNs).

ISSUE-WISE DETAILED ANALYSIS

Reimbursable Expenses under CHA Services

• Legal Framework and Precedents: The appellants argued that reimbursable expenses should not be included in the taxable value for service tax purposes, citing the Supreme Court decision in UOI v Intercontinental Consultants and Technocrats Pvt Ltd, which struck down Rule 5(1) of the Service Tax Valuation Rules, 2006 as ultra vires.
• Court's Interpretation and Reasoning: The Tribunal agreed with the appellants, noting that the Supreme Court had clarified that reimbursable expenses should not be included in the taxable value of services, as they do not constitute consideration for services rendered.
• Key Evidence and Findings: The Tribunal found that the adjudicating authority's reliance on Rule 5(1) was misplaced, as the rule had been invalidated by higher judicial authority.
• Application of Law to Facts: The Tribunal applied the Supreme Court's interpretation, concluding that the demands related to reimbursable expenses could not be sustained.
• Conclusions: The Tribunal set aside the demand for service tax on reimbursable expenses, aligning with the Supreme Court's precedent.

Freight Rebate, Brokerage, and Incentives under Business Auxiliary Services

• Legal Framework and Precedents: The appellants contended that profits from freight forwarding activities should not be taxed under Business Auxiliary Services, referencing several Tribunal decisions that supported their position.
• Court's Interpretation and Reasoning: The Tribunal noted that the appellants' activities were conducted on a principal-to-principal basis and that the profits were not consideration for promoting or marketing services of another entity.
• Key Evidence and Findings: The Tribunal referenced its own prior decisions and those of other courts, which consistently held that such profits are not taxable under Business Auxiliary Services.
• Application of Law to Facts: The Tribunal found that the appellants' activities did not fit within the scope of Business Auxiliary Services as defined in the Finance Act.
• Conclusions: The Tribunal set aside the demand for service tax on freight rebate, brokerage, and incentives, as these were not taxable under the claimed service category.

Extended Period of Limitation and Penalties

• Legal Framework and Precedents: The extended period of limitation under Section 73(1) of the Finance Act requires evidence of fraud, collusion, or willful misstatement.
• Court's Interpretation and Reasoning: The Tribunal found no evidence of such conduct by the appellants, noting that the issues were interpretational in nature.
• Key Evidence and Findings: The Tribunal observed that previous SCNs on similar issues had been decided in favor of the appellants, negating the grounds for extended limitation.
• Application of Law to Facts: The Tribunal concluded that the extended period of limitation was not applicable, and penalties were unwarranted.
• Conclusions: The Tribunal set aside the penalties and the invocation of the extended period of limitation.

Confirmation of Demand under Business Auxiliary Services

• Legal Framework and Precedents: The Tribunal emphasized that demands must align with the proposals in the SCNs and cannot be confirmed under a different service category without proper notice.
• Court's Interpretation and Reasoning: The Tribunal found that the adjudicating authority had exceeded the scope of the SCNs by confirming demands under Business Auxiliary Services for periods not proposed in the SCNs.
• Key Evidence and Findings: The Tribunal noted inconsistencies in the SCNs and the adjudicating authority's findings.
• Application of Law to Facts: The Tribunal determined that the confirmation of demand under a different service category was invalid.
• Conclusions: The Tribunal set aside the demand for service tax under Business Auxiliary Services for periods not covered by the SCNs.

SIGNIFICANT HOLDINGS

• Reimbursable Expenses: "The valuation of taxable service cannot be anything more or less than the consideration paid as quid pro quo for rendering such a service."
• Freight Rebate and Brokerage: "The profit earned by sale and purchase of cargo space cannot be levied to service tax."
• Extended Limitation and Penalties: "There is no evidence of any positive act of suppression or willful misstatement with intent to evade payment of service tax."
• Confirmation of Demand: "Revenue cannot sustain a demand under a ground not raised in the SCN."
• Final Determination: The Tribunal allowed the appeal, setting aside the impugned order in original, and granted consequential relief to the appellants.