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TMI Blog2024 (12) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... above discussions and judicial precedents pointed above, we are inclined to hold that reimbursements in the nature of ESI/PF charges/ Uniform charges, tea expenses and insurance does not fall within the ambit of levy of service tax during the material period (2003-04-2007-08 in the present case) and hence the demand is not legally sustainable. As the demand itself is unsustainable, question of imposition of penalty does not arise. Period involved in respect of Manpower Recruitment and Supply Service is between 29.06.2005 to 31.03.2008 for MRC and 26.05.2005 to 27.12.2005 for Nursing Assistants provided to Delphi- TVS - whether the conditions precedent for invocation of the extended period of limitation existed or not? - We find that no specific reasons have been mentioned for invoking the extended period of time in paragraph 9 of the Show Cause Notice. Appellant has been regularly filing periodical returns and discharging applicable service tax. The department was aware of the facts and the issue was detected only upon audit conducted by the department. It is to mention that the ST 3 returns filed by the Appellant periodically are subject to examination and scrutiny by proper offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,101/- under proviso to Section 73(1) of the Finance Act, 1994 along with interest and also imposed equal penalty under Section 78 of the Finance Act, 1994. 2.1 Briefly stated the facts are that the Appellant primarily engaged in rendering Security Agency Service, were also supplying security personnel, drivers, nursing assistants to Delphi-TVS(DT) and civil employees to Madras Regimental Centre (MRC). During the course of Audit, it appeared that the Appellant collected amounts towards ESI and Provident Fund (PF) charges as reimbursements from its Customer- M/s. Delphi TVS during the period from 2003-04 to 2007-08 on which the Service Tax payable was quantified to be Rs.98,421/-. Further, it was also pointed out that the Appellant was liable to pay service tax of Rs.2,95,070/- under Manpower Recruitment or Supply agency service (MRS) w.e.f 16.06.2005 for supply of manpower to MRC and drivers/ nurses to DT. Besides, it appeared that the Appellant was liable to pay service tax on uniform reimbursement to staff by DT amounting to Rs.2,109/-from July 2006 to 2007-08, service tax of Rs.1,088/- on reimbursement of tea expenses from M/s Forgings during 2006-07 2007-08, demand on reimburse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry was not taxable during the material period of demand in view of the judgements cited supra in Para 4.1 above. It was submitted that the salary was pre-determined by MRC while the Appellant was allowed a service charge of 11% initially and subsequently 14%. 4.3 Also, it was submitted that the Appellant being a Proprietary firm was not liable to Service Tax on MRS prior to 01.05.2006 as levy was only with regard to a commercial concern and hence Service tax demand was not legally sustainable in terms of the Hon ble Tribunal decision in P.S. Murugesan Vs. CCE [2018 (9) GSTL 99 (Tri.-Chennai)]. 4.4 The Ld. Counsel has argued that the extended period of demand on MRS and reimbursable expenses was not invokable in view of the CESTAT s decision in the case of M/s. Hi Tech Manpower Consultants Pvt. Ltd. Vs. CCE [Final Order No. 40701/2019 dated 29.04.2019] which relied on the Supreme Court s decision cited in Para 4.1 above. The Appellant has also placed reliance on the decisions of the Hon ble Apex Court in International Merchandising Co Vs. CST [2022 (67) GSTL 129 (SC)] and CCE Vs. Northern Operating Systems [2022 (61) (GSTL) 129 (SC)]. 5. The Ld. Authorised Representative Shri M. Sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or its service but is also reimbursed expenses incurred by it such as air travel, hotel stay, etc. It was paying service tax in respect of amounts received by it for services rendered to its clients. It was not paying any service tax in respect of the expenses incurred by it, which was reimbursed by the clients. On 19-10-2007, the Superintendent (Audit) Group II (Service Tax), New Delhi issued a letter to the petitioner on the subject service tax audit for the financial year 2002-03 to 2006-07. In this letter, it was mentioned by the appellant that service tax was liable to be charged on the gross value including reimbursable and out of pocket expenses like travelling, lodging and boarding etc. and the respondent was directed to deposit the due service tax along with interest @ 13% under Sections 73 and 75 respectively of the Act. In response, the respondent provided month-wise detail of the professional income as well as reimbursable out of pocket expenses for the period mentioned in the aforesaid letter. Thereafter, a show cause notice dated March 17, 2008 was issued by the Commissioner, Service Tax, Commissionerate vide which the respondent was asked to show cause as to why the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice knows that the goods and services for which payment has been made by the service provider shall be provided by the third party; the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service; the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account. Explanation 1: For the purposes of sub-rule (2), pure agent means a person who - enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service; neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service; does not use such goods or services so procured; and receives only the actual amount incurred to procure such goods or services. Explanation 2 : For the removal of doubts it is clarified that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturns the balance of the amount with a statement of his expenses and the relevant bills. Company X charges these amounts from the recipients of service. The cost incurred by the chauffeur and billed to the recipient of service constitutes part of gross amount charged for the provision of services by the company X. 8. The case set up by the respondent in the writ petition was that Rule 5(1) of the Rules, which provides that all expenditure or cost incurred by the service provider in the course of providing the taxable services shall be treated as consideration for the taxable services and shall be included in the value for the purpose of charging service tax, goes beyond the mandate of Section 67. It was argued that Section 67 which deals with valuation of taxable services for charging service tax does not provide for inclusion of the aforesaid expenditure or cost incurred while providing the services as they cannot be treated as element/components of service. Section 67 was amended by Finance Act, 2006 w.e.f. May 1, 2006. Since the cases before us involve period prior to the aforesaid amendment as well as post amendment period, it would apt to take note of both unamended and amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of providing erection, commissioning or installation service; and (viii) interest on loan. Explanation 2 - Where the gross amount charged by a service provider is inclusive of service tax payable, the value of taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged. Explanation 3. For the removal of doubts, it is hereby declared that the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. 9. After its amendment w.e.f. May 1, 2006, a much shorter version was introduced which reads as under : 67. Valuation of taxable services for charging service tax. - (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more. The quantification of the value of the service can, therefore, never exceed the gross amount charged by the service provider for the service provided by him. On that analogy, the High Court has opined that scope of Rule 5 goes beyond the Section which was impermissible as the Rules which have been made under Section 94 of the Act can only be made for carrying out the provisions of this Chapter (Chapter V of the Act) which provides for levy quantification and collection of the service tax. In the process, the High Court observed that the expenditure or cost incurred by the service provider in the course of providing the taxable service can never be considered as the gross amount charged by the service provider for such service provided by him, and illustration 3 given below the Rule which included the value of such services was a clear example of breaching the boundaries of Section 67. The High Court even went on to hold further pointed out that it may even result in double taxation inasmuch as expenses on air travel tickets are already subject to service tax and are included in the bill. No doubt, double taxation was permissible in law but it could only be done if it was cat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing such taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such taxable service . That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider for such service and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be prospective in nature. 9.2 The Tribunal in the case of P.S. Murugesan Vs. CCE [2018 (9) GSTL 99 (Tri.-Chennai)] held as follows: - 2. The appellant was engaged in providing Manpower to their clients and the said services became taxable with effect from 16-6-2005. On scrutiny of records as well as the contracts it was noticed that Wages, Bonus, Incentives, Contribution to Provident Fund, etc., was to be paid by their clients directly to the employees and it was the liability of their clients. Department was of the view that appellants being service providers are liable to pay Service Tax on such reimbursable expenses also. The show cause notice issued, after adjudication confirmed the demand, interest and imposed penalties. In appeal, Commissioner (Appeals) upheld the same. Hence this appeal. 3. On behalf of appellant the ld. Counsel Shri V.S. Manoj referred to the C.B.E. C. Circular No. B/43/5/97-TRU, dated 2-7-1997 (para 1.3) and argued that Board has clarified that such expenses are not includible in arriving at the taxable value. He relied upon the judgment in the case of Sangamitra Services Agency v. Commissioner of Central Excise - 2007 (8) S.T.R. 233 (Mad.) . The 2nd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d insurance does not fall within the ambit of levy of service tax during the material period (2003-04-2007-08 in the present case) and hence the demand is not legally sustainable. As the demand itself is unsustainable, question of imposition of penalty does not arise. 10.1 Regarding issue at (ii) above, We find that in the present appeal, the period involved in respect of Manpower Recruitment and Supply Service is between 29.06.2005 to 31.03.2008 for MRC and 26.05.2005 to 27.12.2005 for Nursing Assistants provided to Delphi- TVS. The Ld. Counsel for the Appellant has contended that the demand prior to 01.05.2006 is not sustainable as the Appellant was a sole proprietary concern and not a commercial concern. We find that, an amount of Rs.93,261/- pertaining to MRC and entire demand of Rs.13,566/- on Delphi TVS is not legally sustainable, in view of the ratio of the decision discussed at Para 9.2 above, as we find the above demand period was prior to 01.05.2006 during which period the Appellant was not a commercial concern but only a sole proprietary concern. 10.2 For the period from 01.05.2006, We find that MRC and the Appellant have entered in to a deed of contract / agreement peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scrutiny by proper officers before whom the returns are filed. The Appellants were under bona fide belief that no service tax was liable to be paid and hence the appellant also did not charge any service tax. Only after departments stand, the Appellant has raised debit notes on MRC towards service tax. We find that the adjudicating authority in his findings has pointed out to audit findings and non-disclosure by the Appellant, when it was pleaded specifically by the Appellant that they were not aware of the lapses which were unintentional. As such we are of the view that no malafide intent has been brought out. The Hon ble Apex court in CCE Vs Northern Operating Systems [(2022 (61) G.S.T.L. 129 (S.C.)] held as follows: - 62. The revenue s argument that the assessee had indulged in wilful suppression, in this Court s considered view, is insubstantial. The view of a previous three judge ruling, in Cosmic Dye Chemical v. Collector of Central Excise [(1995) 6 SCC 117 = 1995 (75) E.L.T. 721 (S.C.)] - in the context of Section 11A of the Central Excise Act, 1944, which is in identical terms with Section 73 of the Finance Act, 1994 was that: - Now so far as fraud and collusion are concer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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