2024 (10) TMI 902 - AT - Service Tax

Non-payment of service tax on the expenditure reimbursed to them by the group companies - invocation of extended period of limitation - HELD THAT - It is found that as long as the expenses reimbursed are not shown to be a consideration towards the provisions of service, the same cannot be included for the purposes of arriving at the taxable value. The department has not brought out anything on record to show that the said expenses are indeed a consideration but were shown artificially as expenses. The finding of the adjudicating authority that the appellant could not produced any evidence or document to show that these are reimbursed expenses , is not a valid finding. It is for the department who alleged to prove the same with evidence; it is not for the appellant to disprove the same. In the light of the judgment of the Hon ble Supreme Court in the case of Intercontinental Consultants 2018 (3) TMI 357 - SUPREME COURT and in terms of Section 67 of the Finance Act, 1994, service tax is to be levied on the consideration for the services rendered and not for any reimbursement of expenses particularly paid to third parties. Moreover, it is found that the show cause notice does not dispute the nature of the reimbursed expenses and their includibilty; the show cause notice merely avers that the said assessee evaded payment of service tax including education cess on the reimbursed expenses from its subsidiaries in spite of numerous letters issued to them. The appellant has raised that the objection that services rendered by the appellant fall under Business Support Services and not under Management Consultancy Services - the plea has no relevance to the impugned proceedings as the same was not subject matter of the impugned case. Appeal allowed.

Summary

Issues Involved:
1. Includability of reimbursable expenses in the assessable value for service tax.
2. Invocation of the extended period for demand.
3. Classification of services under 'Management Consultancy Services' versus 'Business Support Services'.
4. Revenue neutrality and suppression of facts.

Detailed Analysis:

1. Includability of Reimbursable Expenses:
The core issue in the appeal was whether reimbursable expenses should be included in the assessable value for service tax purposes. The appellant argued that these expenses, incurred and reimbursed on an actual basis, should not be included in the taxable value. The appellant relied on the Supreme Court's decision in *Intercontinental Consultants & Technocrats Pvt Ltd*, which held that reimbursable expenses cannot be included in the service tax valuation as they are not part of the consideration for the service. The Tribunal agreed with this position, noting that Rule 5 of Service Tax (Determination of Value) Rules, 2005, which sought to include such expenses, went beyond the mandate of Section 67 of the Finance Act, 1994. The Tribunal emphasized that the burden of proving that reimbursed expenses are part of the consideration lies with the department, which failed to provide such evidence.

2. Invocation of Extended Period:
The appellant contended that the invocation of the extended period for the demand was unjustified as there was no suppression of facts with the intent to evade tax. The Tribunal found merit in this argument, noting that the appellant had a bona fide belief, supported by differing judicial opinions, that reimbursed expenses were not includable. The Tribunal concluded that the extended period could not be invoked in the absence of a positive act of suppression.

3. Classification of Services:
The appellant argued that the services provided should be classified under 'Business Support Services', which became taxable only from May 1, 2006, rather than 'Management Consultancy Services'. However, the Tribunal found that this issue was not relevant to the current proceedings, as the classification was not part of the impugned case.

4. Revenue Neutrality and Suppression of Facts:
The appellant also claimed that the entire exercise was revenue neutral, as any service tax paid could be availed as credit by the group companies. Furthermore, the Tribunal noted that the adjudicating authority's findings went beyond the scope of the show cause notice, which is not permissible as per the Supreme Court's decision in *Ballarpur Industries Ltd*. The Tribunal emphasized that the show cause notice did not dispute the nature of the reimbursed expenses, only alleging evasion of service tax.

Conclusion:
The Tribunal allowed the appeal, setting aside the demand for service tax on reimbursed expenses, and held that the adjudicating authority's order was beyond the scope of the show cause notice. The Tribunal granted consequential relief to the appellant as per law.