2018 (5) TMI 608 - AT - Service Tax

Valuation - gross amount of remuneration or commission received - Held that - the issue of whether reimbursement of expenses by the service provider on behalf of the service recipient is no longer res integra in view of the judgment of the Larger Bench in the case of Sri Bhagavathy Traders 2011 (8) TMI 430 - CESTAT, BANGALORE , where it was held that What are costs for input services and inputs used in rendering services cannot be treated as reimbursable costs. Since the actual expenses made require verification as correctly pointed out by the learned AR, the matter is remanded back to the adjudicating authority to examine the matter afresh - appeal allowed by way of remand.

Summary

Issues:
1. Whether expenses reimbursed by the appellant should be included in the taxable value for service tax calculation.
2. Validity of penalties imposed under Section 78 and Section 76 of the Finance Act, 1994.
3. Interpretation of Section 67(1) of the Finance Act and Rule 6(8) under Service Tax Rules regarding inclusion of reimbursed expenses in taxable value.

Analysis:

Issue 1: Expenses Reimbursed
The appellant, a Clearing and Forwarding Agent, contested the inclusion of reimbursed expenses in the taxable value for service tax calculation. The appellant argued that expenses like storage rent, electricity, and telephone charges, reimbursed by their principals or clients, should not be considered as part of the taxable value. The appellant relied on various Board Circulars and a Larger Bench judgment to support their position. However, the Revenue contended that the appellant failed to provide documentary proof of actual reimbursement and instead followed a practice of charging a certain percentage on a notional basis. The Tribunal referred to the Larger Bench judgment, which clarified that only expenses paid by the service provider on behalf of the service recipient, under a legal or contractual obligation, should be considered for reimbursement. The Tribunal remanded the matter back to the adjudicating authority for verification of actual reimbursement based on documentation submitted by the appellant.

Issue 2: Penalties Imposed
The Tribunal confirmed the demand for service tax along with interest but waived the penalty imposed under Section 76 of the Finance Act, 1994. The appellant appealed against the confirmation of penalty under Section 78. The Tribunal did not address the validity of the penalties in detail but focused on the main issue of reimbursed expenses. The matter was disposed of by remand for further examination based on the documentation provided by the appellant.

Issue 3: Interpretation of Section 67(1) and Rule 6(8)
The appellant argued that Section 67(1) of the Finance Act and Rule 6(8) under Service Tax Rules, when read together, supported their position that reimbursed expenses should not be included in the taxable value. The Tribunal did not provide a detailed analysis of these provisions but referred to the Larger Bench judgment for guidance on the treatment of reimbursable expenses. The Tribunal emphasized the need for verification of actual reimbursement and directed the adjudicating authority to reexamine the matter in light of the documentation submitted by the appellant.

In conclusion, the Tribunal's decision focused on the treatment of reimbursed expenses in the taxable value calculation for service tax, highlighting the importance of verifying actual reimbursement and following legal obligations in such transactions. The matter was remanded back for further examination to ensure a fair opportunity for the appellant to present their case.