2025 (3) TMI 570 - AT - Service Tax

Valuation of services - inclusion of expenses incurred for stationary reimbursed by electricity authorities - Section 67 of the Finance Act 1994 - exemption from service tax under N/N. 45/2010-ST - Business Auxiliary Service - Extended period of limitation. Includability of reimbursed expenses - HELD THAT - The issue of includability of reimbursed expenses incurred in the course of provision of service has been decided by the Hon ble Apex Court in the case of Intercontinental Consultants Technocrats Pvt. Ltd. 2018 (3) TMI 357 - SUPREME COURT . Hon ble Apex Court held that Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of sub-section (1) of Section 67 is manifest as noted above viz. the service tax is to be paid only on the services actually provided by the service provider. There are no doubt whatsoever that the issue is squarely covered in favour of the appellants. Further as the appellants are not agitating the taxability of the service we are not going into the exigibility of the service. There was no infirmity in the non-inclusion of the value of the stationary reimbursed by the electricity authorities. Invocation of extended period of limitation - HELD THAT - The Department has not made out any case for invocation of extended period. In view of the same the issue is settled in favour of the appellants. Conclusion - i) The reimbursed expenses are not part of the assessable value for service tax purposes. ii) The Department has not made out any case for invocation of extended period. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the expenses incurred for stationary, reimbursed by electricity authorities, should be included in the assessable value for service tax purposes under Section 67 of the Finance Act, 1994.
Whether the services provided by the appellant fall under the category of Business Auxiliary Service, and if so, whether they are exempt from service tax under Notification No. 45/2010-ST.
Whether the extended period for demand under the Finance Act is applicable in this case.

2. ISSUE-WISE DETAILED ANALYSIS

Inclusion of Reimbursed Expenses in Assessable Value

Relevant Legal Framework and Precedents: The legal framework is primarily based on Section 67 of the Finance Act, 1994, which deals with the valuation of taxable services, and Rule 5 of the Service Tax (Determination of Value) Rules, 2006. The case of Intercontinental Consultants & Technocrats Pvt. Ltd. is a significant precedent where the Supreme Court held that reimbursed expenses should not form part of the assessable value for service tax.
Court's Interpretation and Reasoning: The Court referred to the Supreme Court's interpretation that Rule 5 of the Rules, 2006, which includes reimbursed expenses in the gross amount charged, exceeds the mandate of Section 67. The valuation should only consider the amount charged for the actual service provided.
Key Evidence and Findings: The appellant's argument was supported by multiple precedents, including the Intercontinental Consultants case, which clarified that reimbursed expenses are not part of the service value.
Application of Law to Facts: The Court applied the interpretation from the Intercontinental Consultants case, concluding that the reimbursed stationary expenses should not be included in the assessable value.
Treatment of Competing Arguments: The Department's argument for including reimbursed expenses was not supported by the legal framework and precedents. The Court found no justification for the inclusion of such expenses.
Conclusions: The Court concluded that the inclusion of reimbursed expenses in the assessable value was incorrect, and the appellant's position was upheld.

Classification and Exemption of Services

Relevant Legal Framework and Precedents: The classification under Business Auxiliary Service and the exemption under Notification No. 45/2010-ST were considered.
Court's Interpretation and Reasoning: The Court noted that the impugned order did not specify the sub-clause under Business Auxiliary Service applicable to the appellant. The services provided were primarily administrative and exempt under the cited notification.
Key Evidence and Findings: The appellant's services, involving printing and processing electricity bills, were exempt from service tax as per the notification.
Application of Law to Facts: The Court found that the services rendered did not fall under taxable categories, and the exemption applied.
Treatment of Competing Arguments: The Department's lack of clarity on the classification and exemption was noted, leading to the appellant's favorable outcome.
Conclusions: The services were correctly classified as exempt, and no additional service tax was applicable.

Applicability of Extended Period for Demand

Relevant Legal Framework and Precedents: The extended period for demand under the Finance Act is invoked in cases of willful misstatement or suppression of facts.
Court's Interpretation and Reasoning: The Court found no evidence of willful misstatement or suppression by the appellant. The belief that reimbursed expenses were not taxable was bona fide.
Key Evidence and Findings: The appellant acted under a bona fide belief, supported by legal precedents, that the expenses were non-taxable.
Application of Law to Facts: The absence of willful intent negated the applicability of the extended period for demand.
Treatment of Competing Arguments: The Department's argument for invoking the extended period lacked substantiation.
Conclusions: The extended period for demand was not applicable, and the appellant's position was upheld.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: The Court quoted the Supreme Court's reasoning from the Intercontinental Consultants case, emphasizing that "the valuation of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro quo for rendering such a service."
Core Principles Established: The judgment reinforced the principle that reimbursed expenses are not part of the assessable value for service tax purposes, aligning with the Supreme Court's interpretation.
Final Determinations on Each Issue: The Court determined that the inclusion of reimbursed stationary expenses in the assessable value was incorrect, the services were exempt from service tax, and the extended period for demand was not applicable.

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