2025 (2) TMI 417 - AT - Service Tax

Valuation of service tax - inclusion of expenses incurred by the appellant a Customs House Agent (CHA) and reimbursed by client in the assessable value - Pure Agent under Rule 5(2) of the Valuation Rules - extended period of limitation - HELD THAT - The issue is no more res-integra in view of the decision of the Honourable Supreme Court in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd 2018 (3) TMI 357 - SUPREME COURT which has considered the issue of liability to pay service tax on reimbursable expenses received by the service provider in the course of rendering services for the client apart from the consideration received for rendering the services on which the client has discharged the liability to pay service tax. The Honourable Supreme Court affirmed the decision of the Delhi High Court in INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. VERSUS UOI. ANR. 2012 (12) TMI 150 - DELHI HIGH COURT wherein Rule 5(1) of the Service Tax Valuation Rules 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services in the value of such taxable services was stuck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections. Conclusion - The reimbursed expenses are not part of the taxable value for service tax purposes aligning with the Supreme Court s interpretation of Section 67. The impugned order in appeal upholding the impugned order in original cannot sustain - Appeal allowed.

ISSUES PRESENTED and CONSIDERED

The primary legal issues considered in this judgment include:

Whether the expenses incurred by the appellant, a Customs House Agent (CHA), and reimbursed by clients should be included in the gross taxable value for the purpose of service tax under Section 67 of the Finance Act, 1994, read with Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006.
Whether the appellant qualifies as a "Pure Agent" under Rule 5(2) of the Valuation Rules, which would allow exclusion of certain reimbursed expenses from the taxable value.
Whether the extended period of limitation for demanding service tax under proviso to Section 73(1) of the Finance Act, 1994, was rightly invoked by the Department.

ISSUE-WISE DETAILED ANALYSIS

1. Inclusion of Reimbursed Expenses in Taxable Value

Relevant Legal Framework and Precedents: The case revolves around Section 67 of the Finance Act, 1994, which defines the taxable value of services, and Rule 5(1) of the Service Tax Valuation Rules, 2006, which includes expenditures incurred by the service provider in the taxable value. The Supreme Court's decision in UOI v Intercontinental Consultants and Technocrats Pvt Ltd is pivotal, as it struck down Rule 5(1) as ultra vires the Act.
Court's Interpretation and Reasoning: The Tribunal relied heavily on the Supreme Court's interpretation that Rule 5(1) went beyond the scope of Section 67 and that the service tax should only be levied on the consideration for services actually rendered, not on reimbursable expenses.
Key Evidence and Findings: The appellant provided CHA services and incurred expenses on behalf of clients, which were reimbursed. The Department argued these should be included in the taxable value, but the Tribunal found otherwise based on the Supreme Court's ruling.
Application of Law to Facts: The Tribunal applied the Supreme Court's interpretation to conclude that the reimbursed expenses should not be included in the taxable value, as they were not consideration for services rendered.
Treatment of Competing Arguments: The Tribunal dismissed the Department's argument for inclusion of expenses, citing the Supreme Court's decision that such inclusion was beyond the statutory mandate.
Conclusions: The Tribunal concluded that the reimbursed expenses should not be included in the taxable value for service tax purposes.

2. Qualification as a "Pure Agent"

Relevant Legal Framework and Precedents: Rule 5(2) of the Valuation Rules allows exclusion of expenses if the service provider acts as a "Pure Agent" for the recipient of the service.
Court's Interpretation and Reasoning: The Tribunal did not delve deeply into this issue, as the decision on the primary issue rendered it largely moot. However, the Department had argued that the appellant did not meet the conditions to qualify as a "Pure Agent."
Key Evidence and Findings: The appellant claimed expenses were reimbursed on actuals, suggesting a "Pure Agent" role, but the Tribunal focused on the broader legal principle established by the Supreme Court.
Application of Law to Facts: The Tribunal's decision on the primary issue meant the detailed analysis of "Pure Agent" status was unnecessary.
Treatment of Competing Arguments: The Tribunal did not need to resolve this argument due to the overriding Supreme Court precedent.
Conclusions: The Tribunal's decision did not hinge on the "Pure Agent" status due to the Supreme Court's ruling.

3. Extended Period of Limitation

Relevant Legal Framework and Precedents: The proviso to Section 73(1) of the Finance Act, 1994, allows an extended limitation period for service tax demands in cases of fraud, collusion, or willful misstatement.
Court's Interpretation and Reasoning: The Tribunal found that the extended period of limitation was not applicable, as there was no evidence of fraud, collusion, or willful misstatement by the appellant.
Key Evidence and Findings: The appellant had been filing returns regularly, and the alleged shortfall was identified during an audit, negating claims of suppression or misstatement.
Application of Law to Facts: The Tribunal applied the legal standard for invoking the extended period and found it unmet in this case.
Treatment of Competing Arguments: The Tribunal sided with the appellant's argument that the extended period was unjustified.
Conclusions: The Tribunal concluded that the extended period of limitation was wrongly invoked.

SIGNIFICANT HOLDINGS

The Tribunal set aside the impugned order, relying on the Supreme Court's decision that Rule 5(1) of the Valuation Rules was ultra vires and that service tax should only be levied on the actual consideration for services rendered.
The Tribunal held that reimbursed expenses are not part of the taxable value for service tax purposes, aligning with the Supreme Court's interpretation of Section 67.
The Tribunal concluded that the Department's invocation of the extended period of limitation was unjustified, as there was no evidence of fraud or willful misstatement by the appellant.
Consequently, the Tribunal allowed the appeal, providing relief to the appellant from the service tax demand on reimbursed expenses.

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