2012 (7) TMI 564 - AT - Service Tax

Eligibility for exemption under Notification No. 12/2003-ST, dated 20.6.2003 reimbursement expenses - Held that - As the respondent was not merely acting as a Commission Agent but was also doing business promotion activity, the reimbursements of expenses of the staff employed by the respondents were being given is clearly not covered by the definition of commission agent in Notification No.12/2003-ST. So this issue is answered in favour of the Revenue. Taxability of the consideration received as reimbursable expenses Held that - Without employing manpower the respondents could not have provided the service in question. The case laws on reimbursable expenses developed around expenses incurred by Clearing and Forwarding agents for godown rented out for keeping the goods of the principal and freight paid for forwarding the goods. These essentially do not form part of the value of the services of C&F agents. Now such decisions are being further interpreted to argue that any amount like wages of the personnel employed by the service provider, the telephone expenses incurred by the service provider, office rent of the service provider etc. will not form part of the value if billed as reimbursable expenses. This matter has been examined by a Larger Bench of the Tribunal in the case of Sri Bhagavathy Traders v. CCE 2011 (8) TMI 430 - CESTAT, BANGALORE the ratio laid down in that decision would apply and service tax has to be paid on value inclusive of such amounts even if billed as reimbursements. In the matter of Misc. expenses like Registration fees for label or brand, the expenses is not for providing the service being provided by the respondents. So if there is any proof of such expenses incurred by the respondent and reimbursed by SBL, such reimbursed amount will not form part of gross value of services. Similar is the case of transportation expenses paid by respondents on behalf of the SBL. The respondents are not in the business of organising or doing transportation. Transportation is not part of business promotion activity. So actual transportation cost reimbursed will not form part of value of service rendered by the respondents. Invoking section 80 Held that - A person giving his own interpretation of notification and then arguing that he was under the bona fide belief cannot get the protection of such section 80 - as the adjudicating authority did not give the option of paying 25% of the duty demanded within 30 days of the order for discharge of the liability imposed as penalty the matter is remanded to the adjudicating authority for calculation of penalty payable based on rulings given above - there is no need to impose penalties under Section 76 when penalty is imposed under Section 78.

Summary

Issues Involved:
1. Eligibility for exemption under Notification No. 12/2003-ST.
2. Taxability of reimbursable expenses.
3. Application of penalties under sections 76 and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Eligibility for exemption under Notification No. 12/2003-ST:
The first issue addressed was whether the Respondents were eligible for exemption under Notification No. 12/2003-ST dated 20.6.2003 for the period 1.7.2003 to 8.7.2004. This notification exempts business auxiliary services provided by a commission agent from service tax. The tribunal observed that the payments made to the respondent were not merely based on the volume of sales but included other remunerations and reimbursements. For instance, the agreement dated 6.9.03 detailed various terms including fixed expenses and incentives, which were beyond the scope of a commission agent as defined in the notification. Consequently, the tribunal ruled that the Respondents were not eligible for the exemption under Notification No. 12/2003-ST.

2. Taxability of reimbursable expenses:
The second issue was whether reimbursable expenses should be included in the gross value of services. The tribunal differentiated between various types of reimbursable expenses:
- Discounts to Customers: Amounts payable as discounts given to customers were part of the business model and could not form part of the gross value of services rendered.
- Expenses for Manpower and Office Operations: Expenses reimbursed for employing manpower and office operations were integral to the service provided and thus, taxable. This was supported by the Larger Bench decision in Sri Bhagavathy Traders v. CCE, which held that service tax must be paid on value inclusive of such reimbursable amounts.
- Miscellaneous Expenses: Expenses like registration fees for labels or brands and transportation costs, if proven to be reimbursed, were not part of the service value as they were not directly related to the business promotion activities.

3. Application of penalties under sections 76 and 78 of the Finance Act, 1994:
The tribunal disagreed with the Commissioner (Appeals) on invoking section 80 to reduce penalties. It was held that a person's own interpretation of a notification does not justify a bona fide belief to evade tax. The arrangements for claiming expenses as reimbursements indicated an intention to evade tax. However, the tribunal noted that the adjudicating authority did not provide the option to pay 25% of the duty demanded within 30 days to discharge the penalty liability. Following the Delhi High Court decision in K. P. Pouches v. UOI, the tribunal directed the adjudicating authority to offer this option to the respondents. Additionally, it was ruled that penalties under Section 76 were unnecessary when penalties under Section 78 were imposed.

Conclusion:
The tribunal remanded the matter to the adjudicating authority for redetermination of the tax due and penalties payable, based on the rulings given. The gross value of services rendered needed recalculating, and verification was required to ensure the amount of Rs. 5,46,945/- already paid by the respondents was included in the demand.