2014 (3) TMI 76 - AT - Service Tax

Assessable value - Whether the assessable value splited into two parts and one such part is called reimbursement of expneses shall form part of assessable value of the taxable service - Held that - When show cause notice is looked into that leaves ample doubt against the appellant as to its modus operandi and prima facie compels to hold against the appellant. No agreement was made available to us to consider in favour of the appellant. We have gone through anxiety of the revenue and also looked into para 2.5 of the adjudication order. The expenses incurred were directly allocable to generate the service provided and no way can be held to be avoidable to call the same reimbursable for incremental value addition to the service. It appears that revenue lifted corporate veil to go inside the transactions for ascertaining the truth behind the operation. In the entire adjudication process, the Authority noticed evasive practice at different parts of the adjudication order. Appellant has adopted a novel way of splitting the consideration with nomenclature of reimbursement of expenses. Deliberate splitting is not possible to be ruled out when splitting is not intended by law. Once splitting is attributable to a motive, the appellant cannot get any shelter under the purview of law - Service tax to be deposited in installments - stay granted partly.

Summary

Issues:
Assessable value split into two parts - Reimbursement of expenses forming part of assessable value

Analysis:
The primary issue in this appeal is whether the assessable value split into two parts, with one part labeled as reimbursement of expenses, should form part of the assessable value of the taxable service in question. The Appellant argues that expenses not constituting gross receipt for the services provided should not be included in the assessable value. Conversely, the Revenue contends that the expenses, although invoiced separately as reimbursement, are intricately linked to the value of services provided and should be part of the assessable value to prevent tax evasion.

The Appellant relies on the show cause notice and provisions of Service Tax related to the determination of assessable value, asserting that the expenses are not covered under the service tax net. Reference is made to the adjudication order and a certificate from a Chartered Accountant to support the reimbursement aspect. The Appellant also cites a judgment from the Delhi High Court to argue that reimbursement of expenses falls outside the scope of taxation.

The Revenue argues that any gross consideration received for providing taxable services is taxable, irrespective of the manner in which it is received. The Tribunal examines the contentions of both parties, noting doubts raised by the show cause notice regarding the Appellant's operations. Despite the absence of an agreement in favor of the Appellant, the Tribunal observes that the expenses incurred were directly related to generating the services, making them non-avoidable and ineligible for treatment as reimbursable for additional value. The Tribunal highlights the evasive practices noted during the adjudication process and concludes that deliberate splitting of consideration, without legal intent, cannot be condoned.

Considering the financial difficulties faced by the Appellant, the Tribunal directs the Appellant to deposit a specified amount in installments to comply with the service tax demand, penalties, and interest under the Finance Act, 1994. Failure to make the required deposits would nullify the order, allowing the Revenue to recover the dues through legal means. Compliance reporting is mandated upon depositing the installments as per the prescribed schedule to ensure adherence to the order.