2024 (6) TMI 500 - AT - Service Tax

Valuation - inclusion of reimbursable amount in addition to the charges collected by them for the CHG service - pure agency services - HELD THAT - It is observed that the appellant has specific agreements with 56 clients and there is no dispute that the charges collected by them can be classified as pure agents. The adjudicating authority has issued a certificate stating that the charges collected by the appellant are pure agents. The adjudicating authority has relied upon the Chartered Accountants Certificate and came to the conclusion that the appellant is not liable to pay service tax on the reimbursable expenses demanded by the department on the charges collected as pure agents. The department has not brought in any evidence to show that the reimbursable expenses collected by the appellant are not towards rendering of service as pure agents. The Chartered Accountants Certificate specifically clarifies that these reimbursable expenses are collected by the appellant as pure agents. In the accounts of appeal, the review contended that there is no indication in the order in which the adjudicating authority has cross-verified the Chartered Accountants Certificate with primary documents such as bills, invoices and other relevant records. There is no reason to doubt the genuineness of the certificate issued by the Chartered Accountants. Thus, there is no infirmity in the order passed by the land adjudicating authority by relying on the certificate issued by the Chartered Accountants. The demand dropped in the impugned order is upheld - the adjudicating authority has rightly dropped the demand on the basis of the impugned order on this court - appeal dismissed.

Issues Involved:
1. Dropping of the demand of Service tax on the 'reimbursable expenses' collected by the Respondent as 'Pure Agents'.
2. Dropping of the demand of service tax on the difference between the amounts recorded in the Profit & Loss Account and ST-3 Return.

Detailed Analysis:

1. Dropping of the demand of Service tax on the 'reimbursable expenses' collected by the Respondent as 'Pure Agents':

The Respondent, a Custom House Agent (CHA), entered into agreements with clients to act as 'pure agents.' They collected reimbursable expenses incurred on behalf of the principals, which they excluded from the assessable value for service tax purposes. The Commissioner of Service Tax, Kolkata, examined the agreements and invoices, concluding that the Respondent fulfilled the conditions stipulated under Explanation-1 of 'Pure Agent.' The Commissioner relied on Board Circular No.119/13/2009-ST and the Supreme Court decision in Commissioner of Central Excise and Customs, Rajkot v. Reliance Industries Ltd., holding that reimbursable expenses are not includable in the assessable value for service tax computation. Consequently, the demand raised in the Notice on 'reimbursable expenses' was dropped.

The Revenue contended that the adjudicating authority relied on a Chartered Accountant Certificate without verification and did not consider certain taxable values received from SEZ developers. The Revenue argued that the Respondent failed to prove their status as 'Pure Agents' and that the adjudicating authority did not examine whether all 'reimbursable expenses' could be considered receipts under 'pure agents.'

The Tribunal observed that the Chartered Accountant issued the certificate after verifying primary documents, and the Department did not provide evidence to substantiate allegations against the certificate's genuineness. The Tribunal upheld the adjudicating authority's decision, noting that the Supreme Court in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd. held that 'reimbursable expenses' collected as 'Pure Agents' are not includable in the assessable value for service tax purposes.

2. Dropping of the demand of service tax on the difference between the amounts recorded in the Profit & Loss Account and ST-3 Return:

The Show Cause Notice demanded service tax on the difference between amounts recorded in the Profit & Loss Account and the ST-3 return. The Respondent argued that their accounts were prepared on an accrual basis, while service tax was paid on a receipt basis during the material period. The adjudicating authority accepted this submission, holding that service tax was correctly paid based on the gross amount received during the respective financial years. Consequently, the demand raised on this count was also dropped.

The Tribunal found that the Balance Sheet and Profit & Loss Account were prepared on an accrual basis, while service tax was payable on a receipt basis. The Department demanded service tax based on Bank Statements and the Balance Sheet and Profit & Loss Account. The adjudicating authority examined the issue and dropped the demand, as there was no evidence to substantiate that the differential amount was received for rendering taxable services.

Conclusion:

The Tribunal upheld the adjudicating authority's decision to drop the demands raised in the Notice. The appeal filed by the Revenue was rejected, affirming that the Respondent fulfilled the conditions of 'Pure Agent' and correctly paid service tax based on the gross amount received during the respective financial years.

← Previous Next →