2024 (9) TMI 1249 - AT - Service Tax

Short-payment of service tax - failure to declare the gross amount received as per the invoices - period from 16.06.2005 to 31.03.2007 - Whether reimbursement expenses incurred by the appellant viz. basic salary, advance, overtime allowance, PF administration and other charges, ESIS, HRA, ex-gratia, medical etc. paid to the employees and recovered from the customers, be includable in the gross taxable value under Section 67 of the Finance Act, 1994 read with Service Tax Valuation Rules in providing Manpower Recruitment and Supply Agency Services during the period 16.06.2005 to 31.03.2012? HELD THAT - The said issue is no more res integra and covered by the judgement of the Tribunal in the case of M.P Security Force Vs. CCE ST 2019 (8) TMI 211 - CESTAT NEW DELHI . In the said case, the appellant M.P. Security Force provided security services and manpower supply service during the relevant period. The question before the Tribunal was whether the component of salary, EPF, ESI and uniform allowances etc. be included in the gross amount charged to their clients. Following the judgment of the Hon ble Supreme in UOI Vs. Intercontinental Consultants and Technocrats Ltd. s case 2018 (3) TMI 357 - SUPREME COURT interpreting the expression such services under Section 67(1) of the Finance Act, 1994, the Tribunal held ' the appellant is entitled for the abatement towards the payment made on account of contribution towards ESI, EPF and PF and also towards wages and salaries while computing the assessable value in terms of Section 67 of the Act for the payment of service tax.' Thus, the administrative charges collected in providing Manpower Recruitment and Supply Agency Service, is only to be part of the gross taxable value and all reimbursable expenses, salary, bonus, etc. paid to the employee by the appellant and collected from their clients cannot be included within the scope of gross taxable value under Section 67(1)(i) of the Finance Act, 1994 during the relevant period from October 2007 to March 2012. The impugned order is set aside - Appeal allowed.

Issues Involved:
1. Inclusion of reimbursement expenses in the gross taxable value under Section 67 of the Finance Act, 1994.
2. Applicability of extended period of limitation for issuing show-cause notices.
3. Imposition of penalties under Section 78 of the Finance Act, 1994.

Detailed Analysis:

Issue 1: Inclusion of Reimbursement Expenses in Gross Taxable Value
The primary issue was whether reimbursement expenses such as basic salary, advance, overtime allowance, PF administration, ESIS, HRA, ex-gratia, and medical expenses paid to employees and recovered from customers should be included in the gross taxable value under Section 67 of the Finance Act, 1994.

The appellant argued that the value of their service is only the "service charges and/or administration charges" received as per agreements, and reimbursements do not form part of the "value" of taxable service. They relied on the Supreme Court judgment in UOI v. Intercontinental Consultants & Technocrats Pvt Ltd, which held that only the service element should be included in the gross amount of "such services."

The Tribunal found that this issue was no longer res integra and was covered by the judgment in M.P. Security Force v. CCE&ST. It was held that contributions towards EPF, ESI, and other allowances are not liable to be included in the gross amount for service tax computation. The Tribunal also referred to the judgment in Security Guards Board for Greater Bom. & Thane Dist. v. CCE, which held that wages and allowances collected from clients are excludible from the gross value of taxable service.

The Tribunal concluded that only the administrative charges collected in providing Manpower Recruitment and Supply Agency Service should be part of the gross taxable value. All reimbursable expenses, including salary and bonuses, paid to employees and collected from clients, cannot be included within the scope of gross taxable value under Section 67(1)(i) of the Finance Act, 1994.

Issue 2: Applicability of Extended Period of Limitation
The appellant contended that the first show-cause notice issued by invoking the extended period of limitation was wrongly confirmed. They argued that the issues involved were classification and valuation of services, and they had a bona fide belief that reimbursements were not liable for service tax. They cited several case laws, including International Merchandising Company, LLC v. CST, to support their claim that the extended period was not applicable.

The Tribunal noted that the appellant had been registered with the Department since 2002 and had been filing ST-3 returns, indicating that service tax had been collected and remitted on eligible service income, not on reimbursement expenses. Therefore, the confirmation of demand by invoking the extended period was not justified.

Issue 3: Imposition of Penalties under Section 78
The appellant argued that the imposition of penalties under Section 78 of the Finance Act, 1994, was unwarranted and should be set aside. They contended that they had a bona fide belief regarding the non-taxability of reimbursements and had been transparent in their ST-3 returns.

The Tribunal, agreeing with the appellant's submissions, found that the imposition of penalties was not justified given the bona fide belief and the transparency in their filings.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeals on merit, with consequential relief as per law. The reimbursement expenses paid to employees and recovered from customers were not includible in the gross taxable value under Section 67 of the Finance Act, 1994. The invocation of the extended period of limitation was not justified, and the penalties imposed under Section 78 were unwarranted.

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