2024 (10) TMI 51 - AT - Service Tax

Short payment of service tax - Non-payment of Service Tax on reimbursable expenses - Non-payment of Service Tax for commission received from clients during 2006-07 to 2009-10 - Non-payment of Service Tax for commission earned on Sea Freight charges during 2006-07 to 2009-10 - penalties. Non-payment of Service Tax of Rs.98,62,631/- on reimbursable expenses - HELD THAT - The said issue has been settled by the Hon ble Apex Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. 2018 (3) TMI 357 - SUPREME COURT wherein it has been held that prior to 14.05.2015, reimbursable expenses are not includable in the taxable value of services rendered by an assessee. In this case, we find that whole of the period is prior to 14.05.2015. Accordingly, the reimbursable expenses received by the appellant from their clients are not includable in the taxable value of the services provided by them. Therefore, the demand of Rs.98,62,631/- is set aside. Non-payment of Service Tax of Rs.74,56,649/- for commission received from clients during 2006-07 to 2009-10 - Non-payment of Service Tax of Rs.23,85,135/- for commission earned on Sea Freight charges during 2006-07 to 2009-10 - HELD THAT - Tthe said amounts were collected on account of sale of space purchased by the appellant from shipping lines, which were sold to their clients at a higher value. Therefore, it is observed that the appellant has earned profit on sale of space, which does not constitute a commission received by the appellant. Hence, the same does not fall under the category of business auxiliary service . The same view has also been taken by the Tribunal in the case of International Clearing and Shipping Agency 2023 (11) TMI 104 - CESTAT CHENNAI wherein it was observed ' The notional surplus earned thereby arises from purchase and sale of space and not by acting for a client who has space or slot on a vessel. Section 65(19) of Finance Act, 1994 will not address these independent principal-to- principal transactions of the appellant and, with the space so purchased being allocable only by the appellant, the shipping line fails in description as client whose services are promoted or marketed.' Admittedly, in this case, the said amounts have been earned by the appellant on account of sale of space to their clients, which had been purchased at a lower rate from the shipping lines. In these circumstances, it is a business profit earned by the appellant, which cannot be termed as a service provided by the appellant and thus the same is not chargeable to Service Tax under the category of business auxiliary service - demand set aside. Penalty - HELD THAT - As whole of the demand has been set aside, therefore, no penalty is imposable on the appellant. The impugned order is set aside - appeal allowed.

Summary

Issues:
- Non-payment of Service Tax on reimbursable expenses
- Non-payment of Service Tax on commission received from clients
- Non-payment of Service Tax on commission earned on sea freight charges

Analysis:
The appellant appealed against an order demanding Service Tax of Rs.1,75,03,370/- along with interest and penalty under the Finance Act, 1994. The appellant, registered under various service categories, was accused of not paying Service Tax on the full amount of services provided. The charges included non-payment of Service Tax on reimbursable expenses, commission received from clients, and commission earned on sea freight charges. The Show Cause Notice was upheld by the adjudicating authority, leading to the appeal.

Regarding the issue of non-payment of Service Tax on reimbursable expenses, the appellant argued that expenses reimbursed by clients should not be taxable, citing a Supreme Court decision. The Tribunal found in favor of the appellant, stating that reimbursable expenses are not taxable pre-2015, thus setting aside the demand.

On the issues of non-payment of Service Tax on commission received from clients and commission earned on sea freight charges, the appellant contended that the amounts were profits from selling space purchased from shipping lines, not commissions. Citing precedent, the Tribunal agreed with the appellant, ruling that the profits earned did not fall under the category of business auxiliary service and were not subject to Service Tax. The Tribunal set aside the demands on these grounds.

As the entire demand was set aside, no penalty was imposed on the appellant. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief. The Tribunal's decision was pronounced in open court, providing relief to the appellant against the Service Tax demands.