2024 (2) TMI 1521 - AT - Service Tax

Confirmation of demand - imposition of penalty under section 78 of the Finance Act 1994 - short-payment of Service Tax under Reverse Charge Mechanism (RCM) against import of certain services - irregular availment of Cenvat credit of input services - levy of penalty. Levy of penalty - HELD THAT - It is an admitted fact that the moment audit pointed out they have paid the Service Tax along with interest. Therefore the department was aware that they have already paid the Service Tax and interest as it was even recorded in the SCN. Further on going through various grounds taken including revenue neutrality it would be obvious that there were certain interpretational issues which the appellant would have had while considering the payment of Service Tax or otherwise - in the absence of any cogent and positive evidence by the department about deliberate and intentional suppression or misstatement the ground for invoking extended period cannot be sustained and on the same ground the penalty can also be not imposed. Further since these conditions are not established therefore the benefit under Section 73(3) cannot be denied and once the amount has been paid along with interest there was no need to issue SCN. Therefore on this count the Order of the Commissioner imposing penalty in the facts of the case cannot sustain and accordingly the penalty imposed by the Adjudicating Authority is set aside. Short payment of Service Tax under Business Support Service by wrongly claiming deduction under Pure Agent clause - HELD THAT - During the material time Rule 5 provided for inclusion of reimbursable activities as part of service provided. As per Rule 5(1) as it existed during the material time whether any expenditure or costs are incurred by the service provider in the course of providing taxable service all such expenditure or costs were to be treated as consideration for taxable service provided or to be provided and shall be included in the value for the purpose of charging Service Tax on the said service. Therefore irrespective of the fact whether the expenditure or costs are incurred on reimbursable basis or otherwise it was required to be included in the gross value in terms of Rule 5(1). However Rule 5(2) which was subject to the provisions of Rule 5(1) certain expenditure and costs incurred by the service provider as pure agent of the recipient of service was required to be excluded from the value of taxable service subject to fulfillment of certain conditions. The Adjudicating Authority has examined these conditions and came to the conclusion that the appellants have not fulfilled all the conditions enumerated under Rule 5(2) to justify the claim of deduction as pure agent. The issue regarding inclusion of reimbursable expenditure or costs in the gross value of consideration received for providing taxable service or otherwise is no longer res integra in view of the judgment in the case of Union of India Vs Intercontinental Consultants and Technocrats Pvt Ltd 2018 (3) TMI 357 - SUPREME COURT . Hon ble Supreme Court at Para 21 inter alia observed that Rule 5 brings within its sweep the expenses which are incurred while rendering the services and are reimbursed i.e. for which the service recipient has made payment to the assessee and as per these Rules these reimbursable expenses also forms part of the gross amount charged. Conclusion - The reimbursable expenses should not be included in the taxable value. Penalty imposed on the appellants for short payment of Service Tax and Cenvat credit demand set aside as there was no evidence of willful misstatement or suppression. The impugned order is set aside - appeal allowed.

Summary

The case involves M/s ADP Pvt Ltd appealing against an Order-in-Original (OIO) confirming a demand and penalty under the Finance Act, 1994. The issues revolve around the alleged non-payment of Service Tax under Reverse Charge Mechanism (RCM) for import of services, irregular availment of Cenvat credit, and short payment of Service Tax under 'Business Support Service' (BSS) by claiming a deduction under the Pure Agent clause.Issue 1: Short Payment of Service Tax and Cenvat CreditThe appellants contested the penalty imposition, arguing that they had paid the tax amount with interest before the issuance of the Show Cause Notice (SCN). The Tribunal noted that the appellants had rectified the short payments promptly upon audit detection. The Adjudicating Authority's observations lacked substantive evidence to establish willful misstatement or suppression, thus extended period and penalty imposition were deemed unjustified. The Tribunal set aside the penalty based on the provisions of section 73(3) of the Finance Act, 1994.Issue 2: Short Payment under Business Support ServiceThe appellants claimed reimbursement from M/s BSG Services India Pvt Ltd, contending that this amount should be excluded from the gross value for Service Tax calculation. The Tribunal analyzed Rule 5 of the Service Tax (Determination of Value) Rules, 2006, and found that the appellants did not meet the conditions for claiming deduction as a pure agent. However, referring to the judgment in Union of India Vs Intercontinental Consultants and Technocrats Pvt Ltd, the Tribunal concluded that reimbursable expenses should not be included in the taxable value. As Rule 5 was declared ultra vires, the demand for Service Tax on reimbursable expenditure was set aside.Significant Holdings:- The Tribunal set aside the penalty imposed on the appellants for short payment of Service Tax and Cenvat credit, as there was no evidence of willful misstatement or suppression.- The demand for Service Tax on reimbursable expenditure under Business Support Service was deemed unsustainable following the judgment in Union of India Vs Intercontinental Consultants and Technocrats Pvt Ltd.In conclusion, the Tribunal allowed the appeal, pronouncing the judgment on 21.02.2025.