2017 (8) TMI 549 - AT - Service Tax

Event Management Service - pure agent service - The case of the department is that the appellant are collecting additional amount on account of various expenses in the name of reimbursement of certain expenses and claimed the said reimbursement is not liable to service tax - whether reimbursement recovered by the assesee from their clients which is over and above the service charge is liable to be charged service tax or otherwise? - Held that - In the case of Sri Bhagavathy Traders 2011 (8) TMI 430 - CESTAT BANGALORE the Larger Bench observed that the claim for reimbursement towards rent for premises telephone charges stationery charges etc. amounts to a claim by the service provider that they can render such services in vacuum. What are costs for inputs services and inputs used in rendering services cannot be treated as reimbursable costs. The input service and expenses are necessary for providing the service therefore the same cannot be claimed as reimbursement. The issue of reimbursement can be decided on case to case basis depending upon the nature of output service and the input service input and other expenses required for providing the service. Matter remanded to the adjudicating authority for passing a fresh order after affording sufficient opportunities of personal hearing to the appellant - appeal allowed by way of remand.

Summary

Issues:
- Violation of principles of natural justice in passing an exparte order
- Whether reimbursement recovered by the assessee from clients is liable to service tax
- Interpretation of the nature of costs required in providing services
- Adequacy of opportunities of personal hearing granted to the appellant

Analysis:
1. Violation of principles of natural justice: The appellant contended that the order was passed exparte without granting a proper opportunity of hearing, alleging a violation of natural justice. The appellant argued that the adjudicating authority did not grant a hearing despite fixing a date for it, leading to the exparte order. The appellant emphasized that they were not heard on the merits of the case, challenging the validity of the order based on procedural grounds.

2. Reimbursement and service tax liability: The core issue revolved around whether the reimbursement collected by the appellant from clients, in addition to the service charge, was subject to service tax. The appellant claimed that expenses recovered as reimbursement, not forming part of the service charge, should not be included in the taxable service value. Citing precedents, the appellant argued that service tax was already paid on the service charge for event management, hence excluding the reimbursement from the taxable value. Conversely, the respondent relied on judgments stating that such reimbursements are chargeable to service tax, emphasizing the need to consider the nature of costs involved in providing the service.

3. Interpretation of costs in service provision: The Tribunal referred to previous judgments, particularly the case of Sri Bhagavathy Traders, highlighting that costs for inputs and services essential for service provision cannot be treated as reimbursable expenses. The Tribunal emphasized that costs required for providing services must be included in the gross service value, as services cannot be rendered in isolation. The decision on reimbursement was deemed to be case-specific, depending on the nature of services provided and the associated input costs.

4. Adequacy of personal hearing opportunities: The Tribunal acknowledged the appellant's claim regarding the lack of proper personal hearing opportunities, noting that only one hearing was granted and an adjournment request was denied. The Tribunal observed that statutory provisions mandate three hearings before deciding a case, indicating that the appellant was not afforded sufficient opportunities for a personal hearing. Consequently, the Tribunal remanded the matter to the adjudicating authority for a fresh order after ensuring the appellant receives adequate personal hearing opportunities, keeping all issues open for reconsideration.

In conclusion, the Tribunal's judgment addressed the procedural irregularity, the tax liability concerning reimbursements, the interpretation of costs in service valuation, and the necessity of providing adequate personal hearing opportunities to the appellant. The decision to remand the case underscored the importance of upholding principles of natural justice and ensuring a fair hearing before determining tax liabilities related to service reimbursements.