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of <h1>Reimbursements paid by service providers for clients are not taxable receipts under Section 67; extended limitation disallowed</h1> CESTAT, Bangalore - AT allowed the appeal, holding that reimbursements incurred by a service provider on behalf of a client are not part of the gross ... Liability to pay any Service tax on the reimbursements - activities of 'Management Consultancy Service' - suppressed the value of the taxable service - evasion of tax - Show Cause Notice wrongly demanded - What is a reimbursement? - HELD THAT:- When a service provider provides service to a service receiver or a client, on behalf of his client he incurs various expenditure and these expenditure are all for different purposes. The Service Tax liability in terms of Section 67 is only on the gross amount received towards the services rendered. If the service provider in the course of rendering service has to make certain payments on behalf of the service receiver, they are known as reimbursements. The gross receipt for the services rendered means only for the services rendered. The amount of money received only for the services rendered not for all the other expenditure which is to be incurred normally by the client. Therefore, it is not necessary that for each service, there should be a provision in the Finance Act regarding the deductions from the gross receipt as held out by the learned Commissioner (A). According to the Commissioner (A) there is no provision for deductions on account of reimbursement and whatever gross amount is charged by the service provider, the same is liable for Service tax. This approach is not at all correct. In all the decisions relied on by the learned advocate, it has been clearly spelt out that the reimbursements are not subject to Service Tax. We find that the Show Cause Notice is based on the balance sheet and other documents maintained by the party, therefore, appellants have also been regularly paying Service tax and also filing the required returns. Therefore, there is no evidence to show that they had suppressed the facts with an intention to evade payment of duty. Hence, the longer period cannot be invoked. We allow the appeal with consequential relief. Issues:- Whether reimbursements can be subjected to Service taxRs.- Whether the appellants had suppressed the value of taxable service to evade Service TaxRs.- Whether the longer period can be invoked for demand of Service TaxRs.- Whether the appellants are liable to pay Service tax on reimbursements made by themRs.- Whether the Show Cause Notice wrongly demanded Service Tax from other proprietary concernsRs.Analysis:1. Reimbursements and Service Tax Liability:The appeal challenged an Order-in-Original alleging that the appellants suppressed the value of taxable services and evaded Service Tax. The Tribunal examined the nature of reimbursements in the context of Service Tax liability. It was clarified that reimbursements are not for the services rendered but for other expenditures incurred on behalf of the client by the service provider. The Tribunal emphasized that reimbursements are not subject to Service Tax, as they are not part of the gross amount received for services rendered. Various Tribunal decisions were cited to support this position.2. Suppression of Facts and Longer Period Invocation:The Tribunal found that the Show Cause Notice was based on the balance sheet and regular books of accounts of the appellants. Since the appellants had been regularly paying Service tax and filing returns, there was no evidence of intentional suppression of facts to evade duty. Consequently, the Tribunal held that the longer period for demand of Service Tax could not be invoked in this case.3. Applicability of Case Laws and Relief Granted:The appellants relied on several case laws to argue against the demand for Service Tax on reimbursements. The Tribunal acknowledged the relevance of these case laws and allowed the appeal with consequential relief. It was observed that the Show Cause Notice incorrectly demanded Service Tax from other proprietary concerns not engaged in management consultancy work, emphasizing the distinction between reimbursements and taxable services.In conclusion, the Tribunal ruled in favor of the appellants, emphasizing that reimbursements are not liable to Service Tax and that there was no evidence of intentional suppression of facts. The appeal was allowed, providing relief to the appellants based on the legal principles surrounding reimbursements and Service Tax liability.
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