2014 (1) TMI 1556 - AT - Service Tax

Assessable value - Whether the reimbursements are to be taken into consideration while arriving at the assessable value for the purpose of service tax - Held that - tax has to be paid on the gross amount received - what are costs for inputs services and inputs used in rendering services cannot be treated as reimbursable costs. There is no justification or legal authority to artificially split the cost towards providing services partly as cost of services and the rest as reimbursable expenses - Following decision of Sri Bhagavathy Traders V. CCE, Cochin 2011 (8) TMI 430 - CESTAT, BANGALORE - Decided against assessee.

Summary

Issues involved: Whether reimbursements are to be considered in the assessable value for service tax calculation; Penalty under Section 76 of the Finance Act.

Analysis:

Issue 1: Reimbursements in assessable value for service tax calculation
The main issue in these appeals revolved around whether reimbursements should be factored into the assessable value for service tax calculation. The appellants sought abatement for various expenses, including petrol/kerosene purchases, telephone bills, electricity bills, transportation charges, and miscellaneous expenses. The Tribunal referred to the decision of the Larger Bench in the case of Sri Bhagavathy Traders v. CCE, Cochin, where it was held that tax must be paid on the gross amount received. The Tribunal emphasized that costs for inputs services and inputs used in rendering services cannot be treated as reimbursable costs. It was stated that there is no basis to artificially allocate costs towards services and reimbursable expenses separately. Consequently, the Tribunal upheld the order demanding duty along with interest based on the Larger Bench decision.

Issue 2: Penalty under Section 76 of the Finance Act
Regarding the penalty imposed under Section 76 of the Finance Act, the appellant argued that the issue of reimbursements was settled by the Larger Bench, leading to differing views. The appellant invoked Section 80 of the Finance Act, claiming a genuine belief that reimbursements should not be included in the assessable value for service tax. The Tribunal acknowledged the existence of conflicting views on the issue before the Larger Bench's decision in the Bhagavathy Traders case. Due to this conflicting precedent, the penalties imposed on the appellants were set aside. The order of the Commissioner (Appeals) was modified to reflect this decision, while upholding the rest of the Commissioner (Appeals) order.

In conclusion, the appeals were partly allowed by the Tribunal, with a specific focus on the treatment of reimbursements in the assessable value for service tax calculation and the penalty under Section 76 of the Finance Act. The judgment provided clarity on the treatment of reimbursements and highlighted the impact of conflicting views on penalties imposed in such cases.