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TMI Blog2007 (4) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... o service tax. However, certain OPE were considered as not liable to service tax i.e. one relating to traveling, boarding and lodging expenses, provided the assessee substantiate the same with the help of documentary evidence. 3. As a result of audit undertaken in 2002 for the period April 2000 to September 2000 and subsequent investigations, assessee could not provide satisfactory explanation and supportive documents for OPE amounting to Rs. 35,68,38,421/- out of total sum of Rs. 40,82,55,661/- for the period October 199S to March 2003 and accordingly a show cause notice was issued seeking to demand service tax amounting to Rs. 1,78,41,921/- in respect of such inadmissible OPE. These expenses mainly related to traveling, lodging and boarding expenses except for a sum of Rs. 6,32,92,925/-, which was disallowed as being expenses relating to infrastructure and establishment charges unrelated to traveling, lodging and boarding. 4. This scrutiny further revealed that for rendering the management consultancy services, the assessee has obtained certain core documents from its Head Office and borrowed services from its subsidiary as well as its Head Office for which a sum of Rs. 89,27,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments received in foreign exchange. (4) Liability to service tax on expenses incurred in procuring core document and borrowing other services from Head Office and other Mckinsey entities for which no recovery was made from client and service tax has been charged as agent of the principal. (5) Liability to service tax on expenses incurred on core documents and borrowed service charges of which recovery was made from the client. (6) Limitation. (1) Disallowance of abatement of traveling, lodging and boarding expenses on account of insufficient documentary evidence. As regards traveling, lodging and boarding expenses, though the service tax is chargeable on gross amount received from the client abatements have been allowed on traveling, lodging and boarding expenses as per circular issued by the CBEC vide F. No. B-II/03/98-DRU dated 7-10-92. However expenses incurred on such traveling, boarding to the extent of 35,68,38,421/- has been denied on the ground that the appellants have failed to substantiate their claim by providing necessary documentary evidence and there were discrepancies in the amount of claim and the supporting vouchers in respect of 11 jobs selected on a sample b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplies, IT supplies and consumables, temporary help delivery/petty cash, postage, time sheet expenses, inter office expenses, bank fee, rental hiring of computers etc. These expenses have been disallowed as according to adjudicating authority only those expenses which were in the nature of traveling, lodging and boarding i.e. non establishment and non infrastructure expenses could be considered for abatement as per the circular issued by the Board and not other expenses as they are distinctly establishment/infrastructure related expenses and are essential and necessary m effective performance of the service rendered by the noticees to their clients under the job arrangement letters for a given project. It was submitted that the adjudicating authority has disallowed the expenses in view of the trade notice, which is of clarificatory nature and the principle of beneficial interpretation should apply. The terms 'such as' used in the trade notice is only illustrative and not exhaustive. Such expenses are the obligation of the client, but for administrative convenience, the client makes a request to the appellant to incurr such expenses on his behalf and therefore are clearly reimburs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n into account for this purpose. (3) Liability to service tax in respect of payments received in foreign exchange. A payment amounting to Rs. 94,21,266/- has been received is reimbursable foreign exchange and as per the appellants contention the same is not liable to service tax in view of the exemption to such receipt under Notification No. 2/99-ST dated 22-8-1999 as superseded by Notification No. 99-ST dated 9-4-1999. These payments in foreign currency relate to travel, lodging, boarding, other miscellaneous expenses, borrowed service charges, core document charges etc. The adjudicating authority has disallowed the exemption on the ground, that the notification was not available to management consultancy services as they are not taxable services defined under Section 65(48) of the Act as it existed during the relevant period and that there is no proof that Mckinsey has not repatriated the foreign exchange outside India. It was submitted that management consultant services were introduced under the Act w.e.f. October 16, 1996 and hence was always a part of the definition of the taxable services If allegation in the show cause notice is true then the service provided by the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounting to Rs 4,46 37,777/- alongwith interest It was submitted that the appellants have not been reimbursed by the client in respect of the services borrowed by them and since they were in the nature of information and data available with the agency from which it has been borrowed without any analysis and providing consultancy, they cannot be considered as a management consultancy services at all Once the adjudicating authority consider them as an agent, an agent cannot be charged service tax for the services received by him. They also cannot be charged as a recipient of the services, if it is considered that the services were provided by Mckinsey, U.S.A and its entities to them in India as the provision for charging service tax from the recipient came only w.e.f June 16, 2005 and even in that case show cause notice has not invoked those provisions. We find that service tax has been demanded from the appellant as an agent of its principal in U.S.A in respect of the charges paid by them to their Head Office and other subsidiaries. Obviously an agent who acts on behalf of the principal cannot be charged to service tax for documents/services which he has received from his principa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which gives example of OPE, as those relating to traveling, boarding and lodging. Though the reference is illustrative, it does give an indication as to what is to be considered as OPE. The expressed OPE has not been defined in any enactment and even though the appellants were given an opportunity to point out if the meaning of OPE has been considered under any other enactment or services, they failed to do so. In common parlance, OPE means expenses which are sundry in nature, cannot be budgeted for and have to be incurred on the spot to meet immediate requirement and are therefore contingent in nature. These must be expenses which are primarily to be incurred by the clients and not the service provider. Therefore as said earlier, it has to be first established that normally the expenses in question were required to be incurred by the clients and were incurred on his behalf as per the client's request and it is then only that the expenses can be considered as reimbursable and eligible for abatement. Core documents and other borrowed services are essentially one which form necessary input for providing the management consultancy services. When a client engage Mckinsey at a high pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erified by the departmental officer and in some cases less charge was pointed out which was duly paid by them. Section 71 as it then existed, requires the central excise officer to verify the correctness of the amount declared and after the ST-3 return have been verified it cannot be said that some information was not disclosed. The department itself has allowed abatement of Rs. 5.14 Crores even though no such disclosure was made in the ST-3 return. It was accordingly submitted that larger period cannot be invoked and penalties under Sections 73 and 78 cannot be imposed. A plea was also made that Section 80 empowers the departmental authorities not to impose penalty under Sections 76, 77, 78 & 79 for any failure referred to in these provision, if the assessee proves there was reasonable cause for the said failure. It was submitted that in view of the trade notice which refers to OPE, they were under bona fide belief that such expenses are admissible for abatement and therefore they did not disclose such OPE believing that they were not required to be disclosed as such and there fore penalty should not have been imposed. 7. We have considered the submissions. We find that the perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived. Value of taxable service has been defined under Section 67(q) as the gross amount received from the client. Thus the applicant was under obligation to declare the total gross amount and not the amount after deducting so called OPE. Even the trade notice does not come to their rescue, as it relates to market research service agent only and then it refers to OPE such as traveling, boarding and lodging only. This does not give idea at all that even core document charges and borrowed services and market research charges will be considered as OPE. In any case even trade notice made it clear that the service tax assessee are required to provide documentary evidence substantiating its claim for abatement from the gross amount received from the client for service rendered to the concern Central Excise authorities. This made it very clear that the appellant were required to first declare the gross amount received by it and then claim abatement duly supported by documentary evidence. For this reason, it cannot be said that the appellants had a bona fide belief that the so called OPE were eligible for abatement and were not required to be reflected in the ST-3 return for claiming aba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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