2024 (8) TMI 1408 - AT - Service Tax

Levy of service tax on the amount received as reimbursements towards the expenses incurred for purchase of consumables - demand has been confirmed on the ground that the consumables used by the appellants for providing the MMR services were agreed to be reimbursed to the appellant but the appellant had failed to fulfill the conditions prescribed under Rule 5 (2) of the Valuation Rules. HELD THAT - The dispute is with respect to all the consumables supplied by the vendors to the appellants for being used for clients while rendering MMR Service. In the agreements it is expressly agreed that the consumables shall be directly purchased by the appellant on behalf of the clients. The cost of the same is agreed to be recovered from the clients and there is no element of profit involved in it. The recovery of cost of the same should not be the part of the gross value of services provided by the appellant. The expenses incurred by the Appellant towards consumables, which are reimbursed on actuals by service recipient, are not towards any service provided by the Appellant. The consideration or gross amount charged for the MMR Service of property (mall) is the management fee charged by the Appellant, on which service tax has already been paid by the Appellant. Hence, the said amount cannot be subject to service tax. There is nothing on record to show that any of the purchase remained unutilized and reverted to the appellant. There is no denial to the fact that the appellant recovers only the amount which has been paid on behalf of the recipient of service that the appellant only charges the cost of consumables and does not recover anything over and above the cost incurred by the appellant for the procurement of the said goods. The expenses incurred in procurement of consumables is recorded as cost/expense, while the amount reimbursed by the service recipient is recorded as income - in case of Bhayana Builders 2018 (2) TMI 1325 - SUPREME COURT establishes that the amount reimbursed for the goods used in providing MMR service does not quality to be called as consideration of section 67. Hence no tax liability arises on this count. Thus, it stands established even by the Hon'ble Apex Court that value of reimbursable expenses incurred by the service provider, which are reimbursed by the service recipient, are not to be included in the gross amount charged for the provision of taxable service in terms of Section 67 of the Act, and Rule 5(1) of ST Valuation Rules, stipulating inclusion of such value into the value of taxable service is ultra-vires Section 67 of the Act. Invocation of extended period of limitation - suppression of facts or not - HELD THAT - In the instant case, the sole ground for invoking extended period of limitation is that the appellant has not intimated the department of the fact of non-payment of service tax on reimbursable expenses received from service recipient under rule 5(2) of the ST Valuation Rules - Since the service tax was not payable on the said amounts, and there was no requirement to disclose the non-taxable amounts, there is neither a suppression of fact nor any intention to evade payment of service tax is imputable to the Appellant. Once the information is completely and clearly disclosed in the return in respect of taxable service, and there is no requirement to disclose non-taxable amounts, there can be no suppression by the Appellant, since the information is already available with the department - the extended period has wrongly been invoked. The service tax demand on the reimbursed amount has wrongly been confirmed. Present is not the case where the extended period of limitation should have been invoked. For the same reason penalty is also held to have been wrongly imposed - appeal allowed.

Issues Involved:
1. Whether the reimbursements towards the expenses incurred for purchase of consumables should be included in the taxable value of services provided.
2. Whether the appellant qualifies as a pure agent under Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006.
3. Validity of invoking the extended period of limitation for issuing the Show Cause Notices (SCNs).

Issue-wise Detailed Analysis:

1. Inclusion of Reimbursements in Taxable Value:
The core issue is whether the reimbursements for consumables should be included in the taxable value of the Management, Maintenance, or Repair Services (MMRS) provided by the appellant. The appellant argued that these reimbursements are not part of the service value as they are recovered on a cost-to-cost basis without any profit element, and thus should not be subject to service tax. The appellant relied on the Supreme Court's ruling in UOI Vs. Intercontinental Consultants and Technocrats Pvt. Ltd., which held that the value of taxable service cannot go beyond the amount charged for the service itself, excluding reimbursable expenses.

2. Qualification as a Pure Agent:
The appellant contended that they acted as a pure agent for their clients, purchasing consumables on their behalf and recovering only the cost. The department, however, argued that the appellant did not fulfill the conditions of a pure agent under Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, and thus the reimbursements should be included in the taxable value. The agreements between the appellant and their clients indicated that the appellant arranged consumables at their own cost, and these were directly received and used by the clients, supporting the appellant's claim of acting as a pure agent.

3. Invocation of Extended Period of Limitation:
The appellant challenged the invocation of the extended period of limitation, arguing that there was no suppression of facts or malafide intent. The department's sole ground for invoking the extended period was the appellant's non-payment of service tax on reimbursable expenses. The tribunal found that since service tax was not payable on these expenses, there was no requirement to disclose non-taxable amounts, and thus no suppression of facts or intention to evade tax could be imputed to the appellant.

Judgment:
The tribunal examined the agreements and found that the appellant acted as a pure agent, recovering only the cost of consumables without any profit element. It was observed that the consumables were directly received by the clients and used for the maintenance services, and the appellant did not own these consumables. The tribunal held that the reimbursed expenses did not form part of the taxable value under Section 67 of the Finance Act, 1994, and Rule 5 of the Service Tax (Determination of Value) Rules, 2006, which was struck down by the Supreme Court in the Intercontinental Consultants case.

The tribunal also held that the extended period of limitation was wrongly invoked as there was no suppression of facts or intention to evade tax by the appellant. Consequently, the demand for service tax on the reimbursed amount was set aside, and the appeal was allowed with consequential benefits. The tribunal also noted that penalties were not imposable as there was no deliberate defiance of law or dishonest conduct by the appellant.

Conclusion:
The tribunal concluded that the service tax demand on the reimbursed amount was wrongly confirmed, the extended period of limitation was wrongly invoked, and penalties were not justified. The appeal was allowed, and the order under challenge was set aside.

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