2013 (11) TMI 1305 - AT - Service Tax

Valuation of service - Agreement with Hindustan Petroleum Corporation for running and maintenance of retail gasoline outlets of HPCL - Reimbursement for services provided - Held that - the reimbursement received namely (a) Tea/coffee & conveyance, (b) electricity charges, (c) own use reimbursements (diesel/oils), (d) DD Commission, (e) miscellaneous like stamping charges, (f) telephone charges, (g) repairs and maintenance (h) diary and calendar printing, (i) price variation adjustment, etc., are deductible from the gross value. The amounts received by ways of reimbursement from HPCL needs to be reduced from the gross value of taxable service. - Thus, it is desirable in the interest of justice to remand the matter for correct determination of tax liability of the appellants. It is held that the reimbursement received are deductible from the gross value - Part pre-deposit ordered - Matter remanded back - Decided in favour of assessee.

Issues Involved:
1. Classification of services under "Business Auxiliary Service" (BAS).
2. Applicability of extended period for demand.
3. Eligibility for reimbursement deductions from gross value.
4. Revenue neutrality and financial hardship claims.

Detailed Analysis:

Classification of Services under BAS:
The primary issue was whether the services rendered by the appellants to HPCL fell under the category of "Business Auxiliary Service" (BAS). The appellants had agreements with HPCL to operate and maintain retail gasoline outlets, performing tasks such as dispensing petroleum products, maintaining security, and handling accounts. The adjudicating authority found that these services were indeed classified under BAS as per Section 65 of the Finance Act, read with subsection 105 (zzb). The appellants did not dispute this classification during the adjudication process.

Applicability of Extended Period for Demand:
Show cause notices were issued invoking the extended period, as the appellants failed to register and comply with service tax provisions. The adjudicating authority confirmed the demand for service tax under Section 73(1) of the Finance Act, along with interest and penalties under Sections 76, 77, and 78. The extended period was justified on the grounds that the appellants did not take registration or pay the tax, which was their legal obligation.

Eligibility for Reimbursement Deductions from Gross Value:
The appellants argued that the amounts received as reimbursements for expenses such as electricity, water charges, and other operational costs should be deducted from the gross value of taxable services. The Tribunal found merit in this argument, citing the case of Inter-continental Consultants and Technocrats (P) Ltd. vs. UOI: 2013 (29) S.T.R. 9 (Del.), which allowed for such deductions. The Tribunal remanded the matter to the adjudicating authority for correct determination of tax liability, considering these deductions.

Revenue Neutrality and Financial Hardship Claims:
The appellants claimed that there was revenue neutrality since HPCL, being a manufacturer, could have taken credit for the service tax paid by the appellants. They also cited financial hardship, arguing that they were of small means and in a financial crisis. The Tribunal acknowledged the financial difficulties and ordered a pre-deposit of Rs. 50,000/- for each appellant, significantly lower than the demanded tax amounts. The Tribunal also noted that the reimbursement amounts should be deducted from the gross value, which would reduce the tax liability by about 60% to 70%.

Conclusion:
The Tribunal remanded the cases to the adjudicating authority for redetermination of tax liability after considering the deductions for reimbursements. The appellants were required to make a pre-deposit of Rs. 50,000/- each and report compliance to the adjudicating authority. The stay applications were disposed of accordingly.

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