2024 (12) TMI 13 - AT - Service Tax

Demand of service tax - Manpower Recruitment or Supply (MRS) - Amounts reimbursable from DT towards ESI PF/Uniform /Tea expenses - HELD THAT - We find that the Appellant is getting several expenses reimbursed which are in the nature of ESI/PF Charges, Uniform expenses, tea expenses and the said reimbursements are akin to the issues decided in the Apex Court s judgement Intercontinental Consultant Technocrats 2018 (3) TMI 357 - SUPREME COURT since the Appellants had collected ESI and PF charges which are indicated separately in the invoices as reimbursements from customer (DT) no abatement on statutory levy like ESI/PF could be extended as per extant Board circular and so the department has entertained the view that the amount was taxable. As per the Apex Court s decision, such reimbursements are taxable only w.e.f. 14th May 2015, the date on which the amendment to Section 67 came into force. Hence in view of the above discussions and judicial precedents pointed above, we are inclined to hold that reimbursements in the nature of ESI/PF charges/ Uniform charges, tea expenses and insurance does not fall within the ambit of levy of service tax during the material period (2003-04-2007-08 in the present case) and hence the demand is not legally sustainable. As the demand itself is unsustainable, question of imposition of penalty does not arise. Period involved in respect of Manpower Recruitment and Supply Service is between 29.06.2005 to 31.03.2008 for MRC and 26.05.2005 to 27.12.2005 for Nursing Assistants provided to Delphi- TVS - whether the conditions precedent for invocation of the extended period of limitation existed or not? - We find that no specific reasons have been mentioned for invoking the extended period of time in paragraph 9 of the Show Cause Notice. Appellant has been regularly filing periodical returns and discharging applicable service tax. The department was aware of the facts and the issue was detected only upon audit conducted by the department. It is to mention that the ST 3 returns filed by the Appellant periodically are subject to examination and scrutiny by proper officers before whom the returns are filed. Appellants were under bona fide belief that no service tax was liable to be paid and hence the appellant also did not charge any service tax. Only after departments stand, the Appellant has raised debit notes on MRC towards service tax. We find that the adjudicating authority in his findings has pointed out to audit findings and non-disclosure by the Appellant, when it was pleaded specifically by the Appellant that they were not aware of the lapses which were unintentional. We are inclined to hold that invocation of extended period in respect of MRS is not legally sustainable in this case. As per Rule 7 of Service Tax Rules,1994 every assessee shall submit the half yearly return by the 25th of the month following the particular half-year. Hence demand of service tax for the period from October 2007- March 2008 is only sustainable and the interest payment u/s 75 automatically flows from such duty demand. We find that the lower authority has imposed penalty only u/s 78 for the total demand. As the demand for extended period is unsustainable. The penalty imposed under Section 78 is set aside. The Appellant has pleaded sufficient cause for non-imposition of penalty and hence penalty for the normal period is also set aside. Disallowance of Cenvat credit - assessee had failed to provide valid documents for availing of such Cenvat Credit and hence the recovery of Cenvat Credit along with interest is sustained. The Appellant has not disputed payment of interest towards belated payment of service tax. Demand on reimbursements of PF/ESI/Uniform /Tea expenses is not legally sustainable and demand on MRS service is upheld only for the normal period. The appeal is partly allowed, with consequential benefits, if any on the above terms.

Summary

Issues Involved:

1. Whether the demand of service tax on reimbursable expenses towards ESI & PF, Insurance, tea, and uniform expenses is sustainable?
2. Whether the demand of service tax on Manpower Recruitment or Supply (MRS) is sustainable?
3. Whether the extended period of demand is invokable?

Issue-Wise Analysis:

1. Reimbursable Expenses:

The primary issue was whether service tax is applicable on reimbursable expenses such as ESI & PF, insurance, tea, and uniform expenses. The Tribunal referred to the Apex Court's decision in Intercontinental Consultant & Technocrats, which clarified that such expenses are not to be included in the value of taxable services prior to the amendment of Section 67 of the Finance Act, 1994, effective from May 14, 2015. The Tribunal concluded that these reimbursements do not attract service tax for the period under consideration (2003-04 to 2007-08) as they fall outside the ambit of taxable services during this period. Consequently, the demand for service tax on these reimbursable expenses was deemed unsustainable, and the penalties associated with this demand were not applicable.

2. Manpower Recruitment or Supply Service (MRS):

Regarding the demand for service tax on MRS, the Tribunal analyzed the period in question, which was from June 29, 2005, to March 31, 2008, for MRC and from May 26, 2005, to December 27, 2005, for Delphi-TVS. The Tribunal noted that prior to May 1, 2006, the appellant was a sole proprietary concern and not a commercial concern, which exempted them from the service tax under the definition applicable at that time. Thus, the demand for service tax for the period before May 1, 2006, was not legally sustainable. For the period after May 1, 2006, the Tribunal found that the appellant was liable to pay service tax on the gross amount charged for MRS, as per Section 67 of the Finance Act, 1994.

3. Extended Period of Demand:

The Tribunal examined whether the extended period of demand was applicable. According to Section 73 of the Finance Act, 1994, the extended period can be invoked in cases of fraud, collusion, willful misstatement, suppression of facts, or contravention of provisions with intent to evade tax. The Tribunal found no evidence of willful suppression or intent to evade tax by the appellant, as they had been regularly filing returns and the issue was only detected during an audit. Citing the Supreme Court's decision in CCE Vs Northern Operating Systems, the Tribunal held that the invocation of the extended period was not justified. Consequently, the demand for service tax was sustainable only for the normal period, specifically from October 2007 to March 2008, amounting to Rs.49,784/-.

Cenvat Credit and Interest:

Regarding the disallowance of Cenvat credit of Rs.707/-, the Tribunal upheld the recovery along with interest due to the appellant's failure to provide valid documentation. The appellant did not dispute the payment of interest on the belated payment of service tax.

Conclusion:

The Tribunal concluded that the demand on reimbursements for PF/ESI/Uniform/Tea expenses was not legally sustainable. The demand on MRS service was upheld only for the normal period, and the penalties imposed under Section 78 were set aside. The appeal was partly allowed with consequential benefits, if any, based on the Tribunal's findings.