2017 (11) TMI 1405 - AT - Service Tax

Reverse charge mechanism - IPR Services - includibility of expenditures - Rule 5 of Service Tax Valuation Rules - Held that - The appellants are not incurring any extra cost or expense in receiving such service. If at all, the expenses are incurred by the holding company which in any case fixed the consideration for taxable service provided to the appellant. In terms of Rule 7 of Valuation Rules, it is clear that in respect of taxable services provided form outside India the value shall be actual consideration charged for the services provided - In the present case, there is no allegation that the appellants have not discharged service tax on actual consideration charged by the service provider - there is no justification to invoke Rule 5 to hold that the appellants short paid Service Tax on reverse charge basis. Outstanding consideration to be paid by Holding Company - effect of amendment - Held that - the amendment which brought in a deeming provision for transaction between associate enterprises is applicable from the that date only - the debit entries made prior to 10.05.2008 and shown outstanding on that date cannot be subjected to Service Tax on reverse charge basis based on the explanation, which was introduced under Rule 6 (1) of the Service Tax Rules, 1994 w.e.f. 10.05.2008. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Tax liability on reimbursable expenditure for IPR services received from a holding company in France.
2. Payment of Service Tax on consideration attributable for the period prior to 10.05.2008 for transactions between associate enterprises.

Analysis:
1. The appellants received IPR services from their French holding company and incurred certain expenses during the visit of holding company employees in India. The Revenue contended that reimbursed expenditure should also be subject to service tax under the same category. The original authority upheld the tax liability on such reimbursable expenditure, citing Rule 5 of Service Tax Valuation Rules. The appellant argued that they should only pay service tax on the actual consideration charged for the services provided to them, as per Rule 7 of Valuation Rules. The Tribunal found that the appellants were not incurring any extra cost for receiving the service, as the expenses were borne by the holding company. Rule 5 was deemed inapplicable, and the appellants had discharged service tax on the actual consideration, leading to the appeal being allowed.

2. Another issue revolved around outstanding amounts as of 10.05.2008 for transactions between associate enterprises. The Revenue claimed that the appellants did not pay service tax on outstanding considerations based on an amendment. The Tribunal held that the amendment creating a fiction of payment between associate enterprises was prospective from 10.05.2008. Debit entries made before this date and outstanding on that date could not be subjected to service tax on reverse charge basis. Relying on a previous decision, the Tribunal set aside the tax liability on outstanding amounts as of 10.05.2008. The impugned order was deemed without merit, and the appeal was allowed.

In conclusion, the Tribunal ruled in favor of the appellants, stating that they were not liable to pay service tax on reimbursable expenditure for IPR services received from their holding company in France. Additionally, the Tribunal held that outstanding amounts as of 10.05.2008 for transactions between associate enterprises were not subject to service tax on reverse charge basis, based on the prospective nature of the relevant amendment.