2012 (7) TMI 441 - AT - Service Tax

CESTAT: Reimbursed expenses excluded from service tax value for consulting engineering services

The Appellate Tribunal CESTAT, New Delhi, held that reimbursed expenses should not be included in the value of services for the purpose of paying service ... Inclusion of reimbursed expenses in value of taxable service - scope of consulting engineering services - bona fide belief based on departmental clarification - suppression and time bar/extended period - pre deposit waiver and stay of recoveryInclusion of reimbursed expenses in value of taxable service - scope of consulting engineering services - Reimbursed expenses incurred by the assessee (such as advertisement charges and clearing & forwarding) do not prima facie form part of the value of consulting engineer services taxable as service tax. - HELD THAT: - The Tribunal examined the nature of the disputed reimbursements and found that the activities for which such charges were levied are not prima facie required for rendering consulting engineering services and do not fall within the definition of consulting engineering services. On the materials before it, the Tribunal accepted the appellant's contention that major disputed items (notably advertisement charges placed to procure material and clearing & forwarding of goods) were not integrally connected to the provision of consulting engineering services and therefore were not prima facie includible in the taxable value.Disputed reimbursed expenses are prima facie not includible in the value of consulting engineering services for service tax purposes.Bona fide belief based on departmental clarification - suppression and time bar/extended period - pre deposit waiver and stay of recovery - There was no ground to allege suppression or to deny benefit of time bar in respect of similar earlier notices; in view of the prima facie case and past departmental action, the pre deposit was waived and recovery stayed during the appeal. - HELD THAT: - The Tribunal noted that the Board had earlier issued clarifications (in relation to consulting engineering services) that gave rise to a bona fide belief that certain reimbursed expenses need not be taxed. It also observed that the Revenue had issued earlier show cause notices in respect of similar contracts which were dropped, and that an order dropping demand on time bar grounds in respect of similar contracts had not been challenged by the Revenue. On these facts the Tribunal found there was no suppression warranting invocation of extended period or denial of relief. Considering the prima facie view against includibility of the reimbursements and the absence of proved suppression, the Tribunal found it proper to grant relief from pre deposit and to stay recovery pending disposal of the appeal.Waiver of pre deposit of dues arising from the impugned order granted and recovery stayed during the pendency of the appeal.Final Conclusion: On a prima facie appraisal the reimbursed expenses in dispute are not includible in the value of consulting engineering services; having found a bona fide basis and no suppression or successful challenge to earlier time bar relief, the Tribunal waived the pre deposit and stayed recovery pending appeal. Issues:1. Whether reimbursed expenses should be included in the value of services for the purpose of paying service tax.2. Whether the Revenue's demand for service tax on reimbursed amounts not taxed during a specific period is justified.3. Whether the appellants had a bonafide belief that they need not pay service tax on reimbursed expenses.4. Whether the expenses incurred by the appellants, such as advertisement charges and clearing & forwarding charges, are covered under consulting engineering services.5. Whether the Board's clarification on reimbursed expenses applies to the present case.6. Whether the appellants suppressed relevant information regarding the contracts in question.7. Whether the appellants are entitled to a waiver of pre-deposit of dues and a stay on recovery during the appeal.Analysis:1. The appellants provided consulting engineering services and paid service tax on billed amounts but did not include certain reimbursed expenses in the value of services. The Revenue issued a show cause notice demanding service tax on these reimbursed amounts, alleging they should be part of the service value.2. The appellants argued that similar cases were dropped by the Commissioner (Appeals) due to time limitations for demanding tax. They contended that the present case should be treated similarly and that there was no suppression of facts.3. The appellants claimed a bonafide belief based on the initial Board clarification that reimbursed expenses need not be included in the value of service for consulting engineering services.4. The appellants argued that expenses like advertisement charges for procuring materials and clearing & forwarding charges were not part of consulting engineering services. They contended that such expenses should not be taxed as consideration for providing consulting engineering services.5. The Revenue contended that the Board's clarification only applied to specific expenses related to engineers' services, not the reimbursed expenses in question. They argued that these expenses were necessary for providing the services and should be taxed.6. The Tribunal found that the reimbursed expenses were not essential for consulting engineering services based on the activities involved. They also agreed that there was no suppression of facts by the appellants.7. Considering the arguments, the Tribunal granted a waiver of pre-deposit of dues and stayed the recovery during the appeal, as they found no grounds for alleging suppression and believed the reimbursed expenses did not form part of the service value.This comprehensive analysis covers the key issues and arguments presented in the judgment by the Appellate Tribunal CESTAT, New Delhi.