2024 (12) TMI 532 - AT - Service Tax

Valuation of service tax - inclusion of reimbursements received by the appellant in the assessable value for service tax purposes - grants-in-aid received by the appellant constitute consideration for taxable services. Inclusion of reimbursements received by the appellant in the assessable value for service tax purposes - HELD THAT - It is not in dispute that the appellants are receiving grants-in-aid for the propose of providing training to government staff. The appellants have discharged the service tax liability on the said amounts. The appellants are also receiving certain amounts as reimbursement against expenses made on Hotel accommodation, Dinner charges, Local transportation, programme folder, Stationary Charges etc. These demands relates to the inclusion of the amounts received under the heads of Hotal accommodation, dinner charges, local transportation, programme folder, Stationary Charges etc. The appellants are claiming are that these expenses are in nature of reimbursement and the appellants are acted as pure agents. Therefore, in terms of Rule 5 of the Service Tax (Determination and Valuation) Rules, 2006. The value of such reimbursements are not includable in the assessable value. Whether the grants-in-aid received by the appellant constitute consideration for taxable services? - argument of the appellant is that there is no service provided by the appellant to the government as all the amounts are received as grants-in-aid - HELD THAT - In the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT , the nature of expenses was Hotel stay, transportation, etc. which are similar to the expenses made in the instant case. Thus decision of Hon ble Apex Court is squarely applicable to instant case - it was held by Supreme Court that 'only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax.'. There are no merit in the impugned order. Relying on the decision of Hon ble Apex Court in the case of Intercontinental Consultants Technocrats Pvt. Ltd., the impugned order is set aside - Appeals are allowed.

Summary

Issues Involved:

1. Whether the reimbursements received by the appellant are includable in the assessable value for service tax purposes.
2. Whether the grants-in-aid received by the appellant constitute consideration for taxable services.

Issue-Wise Detailed Analysis:

1. Inclusion of Reimbursements in Assessable Value:

The primary issue was whether reimbursements received by the appellant for expenses such as hotel accommodation, dinner charges, local transportation, program folders, and stationary charges should be included in the assessable value for service tax purposes. The appellant argued that these reimbursements were made in the capacity of a pure agent, and thus, should not be included in the assessable value as per Rule 5 of the Service Tax (Determination and Valuation) Rules, 2006. The appellant relied on the Supreme Court's decision in Intercontinental Consultant Technocrats Pvt. Ltd., which held that reimbursable expenses should not be included in the valuation of service under Section 67 of the Finance Act, 1994. The Tribunal, after considering the arguments, found merit in the appellant's contention, noting that the nature of expenses in this case was similar to those in the Intercontinental Consultants case, such as hotel stay and transportation, which were ruled not to be includable in the assessable value.

2. Grants-in-Aid as Consideration for Taxable Services:

The second issue was whether the grants-in-aid received by the appellant from the Government of Gujarat constituted consideration for taxable services. The appellant contended that these grants were not linked to any specific service provided to the government and thus did not constitute consideration for taxable services. The appellant supported this argument with various decisions, including Checkmate Services Pvt. Ltd. and Centre for Research & Industrial Staff Performance, which established that grants-in-aid used for implementing welfare schemes or charitable causes do not create a service provider-client relationship, and thus, are not subject to service tax. The Tribunal agreed with this position, noting that the grants-in-aid were not specifically meant for any particular service or trainee, but were for a general charitable cause. The Tribunal also referenced the clarification provided in Circular No. 127/9/2010-ST, which stated that donations and grants-in-aid not linked to specific services should not be treated as consideration for service tax purposes. Consequently, the Tribunal concluded that the grants-in-aid received by the appellant did not constitute consideration for any taxable service.

Conclusion:

The Tribunal set aside the impugned order, holding that neither the reimbursements nor the grants-in-aid received by the appellant were subject to service tax. This decision was based on the legal principle that reimbursable expenses incurred as a pure agent are not includable in the assessable value, and that grants-in-aid not linked to specific services do not constitute taxable consideration. The appeals were allowed in favor of the appellant, and the demand for service tax was quashed.