2012 (8) TMI 131 - AT - Service Tax

Services of supply of manpower and security services - whether reimbursement of expenses form part of the assessable value in respect of taxable services of clearing and forwarding service provided by the appellant Held that - claim is to set off Cenvat credit against liability incurred - assessable value shall include reimbursable expenses, matter needs remand to consider Cenvat issue - there shall be no penalty under Sections 76 and 78 of the Finance Act, 1994

Summary

Issues:
1. Inclusion of expenses in assessable value for taxable services.
2. Entitlement to Cenvat credit.
3. Imposition of penalty under Sections 76 and 78 of the Finance Act, 1994.

Issue 1: Inclusion of expenses in assessable value for taxable services:
The Revenue appealed against the First Appellate Order excluding the expenses related to supply of manpower and security services from the assessable value of clearing and forwarding services provided by the appellant. The Revenue argued that expenses integral to the services provided should not be excluded from the assessable value. The respondent contended that expenses should not be included in the assessable value as per the law. The Tribunal held that expenses connected with providing taxable services, if inseparable and integrally connected, must form part of the assessable value. Citing the decision in Sri Bhagavathy Traders case, the Tribunal ruled that such expenses are taxable and upheld the inclusion of expenses in the assessable value, denying relief to the respondent on this issue.

Issue 2: Entitlement to Cenvat credit:
The appellant requested re-quantification of liability, seeking the benefit of Cenvat credit and waiver of penalty if any liability is determined. The Tribunal noted that the permissibility of Cenvat credit is subject to verification and decision by the lower authority. It directed the appellant to lead evidence before the Adjudicating Authority to support its claim for setting off Cenvat credit against the tax liability. The Tribunal remanded the matter to consider the Cenvat issue while determining the ultimate quantum of demand for service tax.

Issue 3: Imposition of penalty under Sections 76 and 78 of the Finance Act, 1994:
The Tribunal acknowledged that the law regarding the inclusion of expenses in the assessable value was in a debatable stage, as evidenced by the referral of matters to the Larger Bench for clarity. Consequently, the Tribunal ruled out the imposition of penalties under Sections 76 and 78 of the Finance Act, 1994, due to the debatable nature of the law. The Tribunal clarified that the mere filing of balance sheets and returns does not automatically amount to disclosure of facts to the Revenue Authorities. The matter was sent back to the Adjudicating Authority for re-determination of the tax payable, with specific instructions to decide the Cenvat issue afresh through a reasoned and speaking order.

In conclusion, the Tribunal partially favored the Revenue by upholding the inclusion of expenses in the assessable value for taxable services. It directed a re-examination of the Cenvat credit entitlement and ruled out the imposition of penalties considering the debatable nature of the law. The case was remanded to the Adjudicating Authority for further proceedings in accordance with the Tribunal's directions.