2013 (5) TMI 452 - Commissioner - Service Tax

Recruitment and supply of personnel - valuation u/s 67 - inclusion of reimbursement of salary and other contributions - held that - There is no dispute that the amount received from the clients i.e. M/s. Hutch and M/s. Zenta was reimbursable amount as the show cause notice itself admits. It is settled law that the principle of taxation is to tax only on the consideration received and retained. In the instant case various expenses incurred during the course of business activity were paid to the persons concerned. For example there cannot be second opinion that amount paid TNEB cannot be included in the taxable value for demanding Service tax. Likewise other amounts received also were paid to the concerned persons and were not retained by the appellant and hence the demand of Rs. 60,418/- is not sustainable. Consequently no interest and penalty are also demandable.

Issues:
1. Service tax demand on reimbursement of salary and contributions.
2. Service tax demand on reimbursable expenses from clients.
3. Imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.

Issue 1: Service tax demand on reimbursement of salary and contributions:
The appellant, engaged in recruitment and supply of personnel, faced a service tax demand of Rs. 2,34,238 for the period from 16-6-2005 to January 2006. The demand arose as the appellant did not include the reimbursement of salary and other contributions paid by clients in the taxable service value for service tax payment. The audit revealed discrepancies in payment and tax compliance. The LAA confirmed the demand but dropped the penalty under Section 76, offering a reduced penalty under Section 78 if payment was made promptly.

Issue 2: Service tax demand on reimbursable expenses from clients:
Another service tax demand of Rs. 60,418 was raised for the period from January 2007 to April 2008 due to unreconciled reimbursable expenses from a client. The appellant challenged this demand citing Board Circulars exempting certain reimbursable expenses from service tax. The appellant argued that no service tax should be levied on such expenses as they acted as a "pure" agent. The LAA upheld the demand, prompting the appellant to appeal.

Issue 3: Imposition of penalties under Sections 76 and 78:
The appellant contested the imposition of penalties under Sections 76 and 78, citing conflicting decisions and Board Circulars exempting certain expenses from taxation. The appellant argued that penalties should not apply when service tax is paid before a show cause notice is issued. The LAA upheld the penalties, leading the appellant to challenge this decision in the appeal. The appellant's representative emphasized that penalties should not be imposed based on the interpretation of the law, especially when there is ambiguity surrounding the tax treatment of certain expenses.

In the final judgment, the Commissioner considered the arguments presented by the appellant and reviewed the case records. The Commissioner found that the reimbursable amounts received from clients were not retained by the appellant and should not be subject to service tax. The Commissioner emphasized the principle of taxing only the consideration received and retained. Therefore, the demand of Rs. 60,418 on reimbursable expenditure was deemed unsustainable, leading to the dismissal of interest and penalties associated with this demand. Additionally, the Commissioner agreed with the appellant's contention that penalties under Section 78 were not justifiable due to conflicting decisions and Board Circulars regarding the tax treatment of reimbursable expenses. Consequently, the Commissioner allowed the appeal by setting aside the impugned order, providing relief to the appellant on the disputed service tax demands and associated penalties.

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