2025 (3) TMI 626 - AT - Service Tax

Valuation of taxable services - inclusion of amounts reimbursed by the licensees for electricity telephone and maintenance charges in the assessable value - Recovery of service tax with interest and penalty - service tax recovered from the clients but not deposited the same to Govt. exchequer. Recovery of service tax with interest and penalty - service tax recovered from the clients but not deposited the same to Govt. exchequer - HELD THAT - The Ld. Commissioner has given the finding that the appellant has not collected the service tax from the licensees - after having found against the Department on the ground on which the show cause notice was issued the Ld. Commissioner should not have confirmed the demand on any other ground. Accordingly the demand confirmed in the impugned is not sustainable abd the same is liable to be set aside on this ground alone. Valuation of service tax - inclusion of amounts reimbursed by the licensees for electricity telephone and maintenance charges in the assessable value - HELD THAT - The payments received by them are the reimbursements and they were not expenditure or cost incurred by them in the course of providing renting of immovable property service. The amounts reimbursed by the licencees for electricity telephone and maintenance were not consideration for any service provided by the appellant in the course of providing renting of immovable property service - the reimbursements received by the appellant on account of electricity telephone and maintenance charges are not includable in the assessable value - demand with interest and penalty set aside. Conclusion - i) After having found against the Department on the ground on which the show cause notice was issued the Ld. Commissioner should not have confirmed the demand on any other ground. ii) The reimbursements received by the appellant on account of electricity telephone and maintenance charges are not includable in the assessable value. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. Whether the appellant collected service tax from the licensees for electricity, telephone, and maintenance charges and failed to deposit it with the Government exchequer.

2. Whether the amounts reimbursed by the licensees for electricity, telephone, and maintenance charges should be included in the assessable value of renting of immovable property service.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Collection and Non-Deposit of Service Tax

- Relevant Legal Framework and Precedents: The issue revolves around the allegation that the appellant collected service tax from the licensees but did not deposit it with the Government. The legal framework requires any collected service tax to be deposited with the Government exchequer.

- Court's Interpretation and Reasoning: The Tribunal noted that the Commissioner found that the appellant did not collect service tax from the licensees in respect of the electricity, telephone, and maintenance charges. This finding was crucial because the show cause notice was based on the premise that the appellant collected but did not deposit the service tax.

- Key Evidence and Findings: The Tribunal referred to the invoices examined by the Commissioner, which did not show any service tax being recovered from the licensees for the specified charges.

- Application of Law to Facts: Given the Commissioner's finding that no service tax was collected, the Tribunal held that the demand based on the allegation of non-deposit was unsustainable.

- Treatment of Competing Arguments: The appellant argued that the Commissioner had no jurisdiction to confirm the demand on any ground other than the one specified in the show cause notice. The Tribunal agreed, emphasizing that once the primary ground was found to be incorrect, the demand could not stand.

- Conclusions: The Tribunal concluded that the demand was not sustainable and should be set aside on this ground alone.

Issue 2: Inclusion of Reimbursements in Assessable Value

- Relevant Legal Framework and Precedents: The issue concerns whether reimbursements for electricity, telephone, and maintenance charges should be included in the assessable value of renting of immovable property service. The legal principle is that only the consideration for the service provided should be included in the assessable value.

- Court's Interpretation and Reasoning: The Tribunal observed that the appellant acted as a 'pure agent' in recovering the actual costs without any markup from the licensees. Therefore, these reimbursements were not part of the consideration for the renting service.

- Key Evidence and Findings: The Tribunal noted that the appellant did not provide the electricity, telephone, or maintenance services themselves but merely facilitated the reimbursement of costs incurred by third parties.

- Application of Law to Facts: The Tribunal applied the principle that reimbursements not forming part of the consideration for the service should not be included in the assessable value. Since the appellant did not mark up the charges and acted as a conduit, the reimbursements were excluded from the assessable value.

- Treatment of Competing Arguments: The appellant argued that the reimbursements were not consideration for the renting service, and the Tribunal agreed, noting that the appellant's role was limited to acting as an agent.

- Conclusions: The Tribunal concluded that the reimbursements should not be included in the assessable value, and thus, the demand for service tax on these amounts was not justified.

SIGNIFICANT HOLDINGS

- Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal stated, "The reimbursements received by the appellant on account of electricity, telephone and maintenance charges are not includable in the assessable value."

- Core Principles Established: The Tribunal established that reimbursements for actual costs incurred by a third party and recovered without markup by an entity acting as a 'pure agent' are not part of the assessable value for service tax purposes.

- Final Determinations on Each Issue: The Tribunal set aside the demand for service tax, interest, and penalties, allowing the appeal with consequential relief as per law.