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2024 (10) TMI 328 - AT - Service TaxLevy of service tax on reimbursement amount based on Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 - Whether the reimbursement amount can be subjected to levy of service tax for a period prior to May, 2015? - extended period of limitation - suppression of facts or not. HELD THAT - Section 67 of the Finance Act was considered and explained by the Supreme Court in UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT . The appellant therein was providing consulting engineering services. It received payment not only for the services provided by it but was also reimbursed for the expenses incurred by it on air travel, hotel stay, etc. It paid service tax on the amount received by it for services rendered to its clients but did not pay any service tax in respect of expenses incurred by it which were reimbursed by the clients - the service tax is on the value of taxable services and, therefore, it is the value of the services which are actually rendered which has to be ascertained for the purpose of calculating the service tax. It is for this reason that the Supreme Court observed that the expression such occurring in section 67 of the Finance Act assumes importance. It is in this context that the Supreme Court in paragraph 26 observed that the authority has to find what is the gross amount charged for providing such taxable services and so any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as the amount is not calculated for providing such taxable service . This, according to the Supreme Court, is the plain meaning attached to section 67 of the Finance Act either prior to its amendment on 01.05.2006 or after this amendment and if this be so, then rule 5 went much beyond the mandate of section 67 of the Finance Act. The Supreme Court, therefore, held that the reimbursement amount cannot be treated as gross amount charged as that is not a consideration for rendering the service. It needs to be noted that it is only w.e.f. 14.05.2015 that reimbursable expenditure or cost would form part of valuation of taxable service. However, in the present case, the transaction were made before 14.05.2015. Thus, inclusion of the reimbursable cost in the value of taxable service cannot be justified. Extended period of limitation - suppression of facts or not - HELD THAT - In the present case, the Commissioner observed that the appellant had received certain amount as reimbursement but deliberately avoided payment of service tax on the said amount with an ulterior motive to defraud the government. The Commissioner also observed that the appellant had abused the facility of self-assessment. It is for this reason that the Commissioner found that the appellant had suppressed facts with intention to evade payment of service tax. The Commissioner, therefore, could not have confirmed the demand of service tax for the extended period of limitation as the requirements of the proviso to section 73(1) of the Finance Act are not satisfied. This part of the order of the Commissioner, therefore, also deserves to be set aside - the impugned orders dated 10.10.2012, therefore, deserves to be set aside and are set aside - appeal allowed.
Issues Involved:
1. Classification of services under "manpower recruitment services." 2. Taxability of reimbursements under the Finance Act. 3. Validity of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006. 4. Applicability of the extended period of limitation under the proviso to section 73(1) of the Finance Act. 5. Imposition of interest under section 75 and penalties under sections 77 and 78 of the Finance Act. Issue-wise Detailed Analysis: 1. Classification of Services: The appellant argued that the Commissioner erred in classifying the services provided under the taxable category of "manpower recruitment services." The appellant contended that the personnel provided were under their control and supervision, not the clients', as evidenced by the agreements. This misclassification, according to the appellant, rendered the entire demand liable to be dropped. 2. Taxability of Reimbursements: The appellant was charged service tax on reimbursements for expenses incurred, in addition to service charges. The department's position was that reimbursements should be taxable under Rule 5 of the 2006 Rules read with section 67 of the Finance Act. However, the appellant argued that reimbursements are not taxable under the Finance Act for the period prior to 19.04.2006, and thus, service tax amounting to Rs. 81,76,886/- should not be levied. 3. Validity of Rule 5(1) of the 2006 Rules: The appellant challenged the applicability of Rule 5(1) of the 2006 Rules, citing the Delhi High Court's decision in Intercontinental Consultant and Technocrats Pvt. Ltd. vs. Union of India, which declared Rule 5 ultra vires sections 66 and 67 of the Finance Act. The Supreme Court upheld this decision, noting that reimbursements cannot be treated as "gross amount charged" as they are not "consideration" for rendering the service. The impugned order relied on Rule 5(1), which has been struck down, thus invalidating the basis for the demand. 4. Extended Period of Limitation: The appellant contested the invocation of the extended period of limitation, arguing that there was no suppression of facts with intent to evade payment of service tax. The Commissioner had held that the extended period was applicable due to the appellant's alleged failure to disclose the correct value of taxable service in their returns. However, the Tribunal found that a mere allegation of suppression without positive evidence could not justify the extended period. The Tribunal referred to Supreme Court precedents which emphasized that suppression must be deliberate to evade duty, and mere non-payment does not suffice. 5. Imposition of Interest and Penalties: The appellant argued against the imposition of interest under section 75 and penalties under sections 77 and 78, stating there was no fraud, collusion, willful misstatement, or suppression of facts. The Tribunal, considering the invalidity of the demand based on Rule 5(1) and the improper invocation of the extended period, found no basis for imposing interest and penalties. Conclusion: The Tribunal set aside the impugned orders dated 10.10.2012, allowing the appeals. The classification of services was deemed incorrect, reimbursements were not taxable for the period in question, Rule 5(1) was invalidated, the extended period of limitation was improperly invoked, and the imposition of interest and penalties was unjustified.
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