2024 (7) TMI 268 - AT - Service Tax

Determination of taxable value - whether in terms of Reseller Agreement, the amount which was being repatriated after deducting profit margin and costs incurred in the course of reselling the ITSS is the correct value in terms of Section 67 or otherwise? - legal services - reverse charge mechanism - Short payment of Service Tax - Extended period of limitation - penalty - revenue neutrality. Determination of taxable value - HELD THAT - On going through the Reseller Agreement as well as observations made by Commissioner (Appeals) and submissions made by the Appellants, it is obvious that they have been incurring certain expenses, which used to be offsetted and reimbursed to them by their principal, who has supplied them the said services. It is not in dispute that the price at the time of import could not have been worked out as the same is linked to the price which is ultimately realized from their customer in India. In terms of Reseller Agreement, they cannot exclude this amount from the gross value charged from their customer, which forms basis for computing their value on which they are determining the price which is charged by their principal abroad to them for providing ITSS. Since in terms of RCM provisions, the Appellants are to be treated as service provider, therefore, the gross value would obviously include any reimbursable expenditure/costs by them since it would be deemed that they are service provider for the purpose of discharging Service Tax and therefore, Section 67 will be applicable. Extended period of limitation - penalty - revenue neutarlity - HELD THAT - The matter has been remanded back for redetermination of fact as to whether revenue neutrality is available as defense against invocation of extended period or imposition of penalty, for the subsequent period, the Commissioner (Appeals) has found that revenue neutrality is not at all available for the Appellants in the facts of the case as a defense against invocation of extended period or imposition of penalty. Both the SCNs have been issued within the normal period of limitation. There are no infirmity in the Orders of the Commissioner (Appeals), especially with regard to the inclusion of operating/marketing expenses in the gross value for the purpose of discharging Service Tax. In so far as invocation of extended period and imposition of penalty is concerned, it is found that the same is to be decided by the Adjudicating Authority in de novo proceedings having regards to facts. Appeal dismissed.

Summary

Issues:
1. Determination of correct gross value for charging Service Tax on import of services.
2. Inclusion of reimbursable expenses and operating profit margin in the gross value.
3. Application of revenue neutrality in defense against extended period and penalty imposition.
4. Validity of Orders of the Commissioner (Appeals) in Appeals ST/31267/2018 & ST/30296/2022.

Analysis:
1. The Appellant was engaged in importing Information Technology Software Services (ITSS) and reselling them under a Reseller Agreement. The Department observed non-payment of appropriate Service Tax on the import of services. A demand was made, which was partly relieved by the Commissioner (Appeals) in Appeal ST/31267/2018. The matter was remanded back for modification of demanded amount and consideration of penalty imposition.

2. In Appeal ST/30296/2022, a demand was proposed for a different period, which was confirmed by the Commissioner (Appeals). Both Appeals were examined together regarding the inclusion of reimbursable expenses and operating profit margin in the gross value for Service Tax. The Commissioner (Appeals) concluded that the Appellants' method of determining the gross value was incorrect based on the Reseller Agreement.

3. The issue of revenue neutrality was raised by the Appellants to defend against extended period and penalty imposition. However, the Commissioner (Appeals) found no evidence to support this claim. The judgments cited by the Appellants were considered, but the Commissioner directed the Adjudicating Authority to reevaluate this aspect in de novo proceedings.

4. The Orders of the Commissioner (Appeals) in both Appeals were upheld, especially regarding the inclusion of operating/marketing expenses in the gross value for Service Tax. The invocation of extended period and penalty imposition was left for determination by the Adjudicating Authority in further proceedings. Both Appeals were ultimately dismissed on 03.07.2024.