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2025 (2) TMI 1163 - AT - Service TaxConfirmation of demand - imposition of penalty under section 78 of the Finance Act 1994 - short-payment of Service Tax under Reverse Charge Mechanism (RCM) against import of certain services - irregular availment of Cenvat credit of input services - levy of penalty. Levy of penalty - HELD THAT - It is an admitted fact that the moment audit pointed out they have paid the Service Tax along with interest. Therefore the department was aware that they have already paid the Service Tax and interest as it was even recorded in the SCN. Further on going through various grounds taken including revenue neutrality it would be obvious that there were certain interpretational issues which the appellant would have had while considering the payment of Service Tax or otherwise - in the absence of any cogent and positive evidence by the department about deliberate and intentional suppression or misstatement the ground for invoking extended period cannot be sustained and on the same ground the penalty can also be not imposed. Further since these conditions are not established therefore the benefit under Section 73(3) cannot be denied and once the amount has been paid along with interest there was no need to issue SCN. Therefore on this count the Order of the Commissioner imposing penalty in the facts of the case cannot sustain and accordingly the penalty imposed by the Adjudicating Authority is set aside. Short payment of Service Tax under Business Support Service by wrongly claiming deduction under Pure Agent clause - HELD THAT - During the material time Rule 5 provided for inclusion of reimbursable activities as part of service provided. As per Rule 5(1) as it existed during the material time whether any expenditure or costs are incurred by the service provider in the course of providing taxable service all such expenditure or costs were to be treated as consideration for taxable service provided or to be provided and shall be included in the value for the purpose of charging Service Tax on the said service. Therefore irrespective of the fact whether the expenditure or costs are incurred on reimbursable basis or otherwise it was required to be included in the gross value in terms of Rule 5(1). However Rule 5(2) which was subject to the provisions of Rule 5(1) certain expenditure and costs incurred by the service provider as pure agent of the recipient of service was required to be excluded from the value of taxable service subject to fulfillment of certain conditions. The Adjudicating Authority has examined these conditions and came to the conclusion that the appellants have not fulfilled all the conditions enumerated under Rule 5(2) to justify the claim of deduction as pure agent. The issue regarding inclusion of reimbursable expenditure or costs in the gross value of consideration received for providing taxable service or otherwise is no longer res integra in view of the judgment in the case of Union of India Vs Intercontinental Consultants and Technocrats Pvt Ltd 2018 (3) TMI 357 - SUPREME COURT . Hon ble Supreme Court at Para 21 inter alia observed that Rule 5 brings within its sweep the expenses which are incurred while rendering the services and are reimbursed i.e. for which the service recipient has made payment to the assessee and as per these Rules these reimbursable expenses also forms part of the gross amount charged. Conclusion - The reimbursable expenses should not be included in the taxable value. Penalty imposed on the appellants for short payment of Service Tax and Cenvat credit demand set aside as there was no evidence of willful misstatement or suppression. The impugned order is set aside - appeal allowed.
ISSUES PRESENTED and CONSIDERED
The Tribunal considered the following core legal issues:
ISSUE-WISE DETAILED ANALYSIS Issue 1: Short payment of Service Tax under reverse charge mechanism and irregular availment of Cenvat credit The appellant argued against the imposition of penalties, having already paid the Service Tax and interest before the SCN was issued. The relevant legal framework is found in Section 73(3) of the Finance Act, 1994, which allows taxpayers to pay the due tax and interest before the issuance of an SCN, potentially avoiding penalties unless fraud, collusion, or willful misstatement is involved. The Tribunal noted that the Adjudicating Authority's decision to impose penalties was based on the appellant's alleged suppression of facts. However, the Tribunal found these claims to be general observations without substantive evidence of intentional suppression or misstatement. The Tribunal emphasized that the appellant had paid the due amounts promptly upon being notified by the audit, indicating no fraudulent intent. The Tribunal concluded that the conditions for invoking the extended period and imposing penalties were not met. Consequently, the penalties imposed by the Adjudicating Authority were set aside, as the appellant had complied with Section 73(3) by paying the tax and interest before the SCN was issued. Issue 2: Short payment of Service Tax under Business Support Service by wrongly claiming deduction under Pure Agent clause The appellant claimed that reimbursements received from M/s BSG Services India Pvt Ltd should not be included in the gross value for Service Tax purposes, citing Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006. The Adjudicating Authority had denied this claim, asserting that the appellant failed to meet the conditions for deduction as a pure agent. The Tribunal examined the legal framework under Rule 5, which mandates that reimbursable expenses should be included in the taxable value, except when specific conditions are met. However, the Tribunal highlighted the Supreme Court's ruling in Union of India Vs Intercontinental Consultants and Technocrats Pvt Ltd, which declared Rule 5 ultra vires for the period before May 14, 2015. This judgment established that reimbursable expenses should not be included in the taxable value for that period. Given the Supreme Court's decision and the lack of evidence from the Revenue to counter the appellant's claim of reimbursement, the Tribunal concluded that the demand for Service Tax on reimbursable expenses was unsustainable. As a result, the Tribunal set aside the impugned order on this ground. SIGNIFICANT HOLDINGS The Tribunal's significant holdings include:
In conclusion, the Tribunal allowed the appeal, setting aside the penalties and the demand for Service Tax on reimbursable expenses, based on the legal interpretations and precedents discussed.
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