2007 (10) TMI 135 - AT - Service Tax

CESTAT Chennai rules reimbursements not subject to service tax

The Appellate Tribunal CESTAT, Chennai, allowed the appeals challenging the demand of service tax on Business Auxiliary Service for the periods in ... Business Auxiliary Service - valuation of taxable service - reimbursements of expenses not includible in taxable value - reliance on departmental circulars and precedentsBusiness Auxiliary Service - valuation of taxable service - reimbursements of expenses not includible in taxable value - reliance on departmental circulars and precedents - Reimbursements received from ICICI Bank towards salaries and infrastructural expenses are not includible in the taxable value of the Business Auxiliary Service rendered by the appellants. - HELD THAT: - Section 67 defines the 'value of taxable service' as the gross amount charged by the service provider for such service. On the facts, the amounts described as 'service charges' constitute the gross amount charged for Business Auxiliary Service; amounts received as reimbursements of salaries and infrastructural expenses were mere reimbursements and were not amounts 'charged' by the service provider. The Tribunal relied on earlier decisions and Board clarifications which held that reimbursements of actual expenses paid by the service recipient are not chargeable to service tax - notably the decision in Bridgestone Financial Se v. Commissioner of Se Tax, Bangalore, and precedents in Consulting Engineers and C&F agents contexts such as Scott Wilson Kirkpatrick (I) Ltd. v. Commissioner of Service Tax, Bangalore, B.S. Refrigeration Ltd. v. Commissioner of Service Tax, Bangalore, and Sangamitra Services Agency v. CCE, Chennai. Reference was also made to Central Board of Excise and Customs circulars clarifying non-taxability of reimbursements in various services. On this reasoning the demand of differential service tax based on inclusion of reimbursements in the taxable value could not be sustained. [Paras 4, 6, 8]Demand of differential service tax confirming inclusion of reimbursements in the taxable value is set aside and the appeals allowed.Final Conclusion: Impugned orders confirming differential service tax and penalties are set aside and both appeals are allowed; stay application disposed of. Issues:1. Challenge against demand of service tax on Business Auxiliary Service.2. Penalties imposed under various provisions of the Finance Act, 1994.3. Valuation dispute regarding reimbursements received from the bank.4. Applicability of the extended period of limitation.Analysis:Issue 1:The appellants contested a demand of service tax on Business Auxiliary Service for the period July '03 to March '05, confirmed by the Commissioner of Service Tax, Chennai. Additionally, a similar demand for the period 2005-06 was also challenged. The appellants were registered as providers of Business Auxiliary Service and voluntarily paid service tax. The service provided to ICICI Bank fell within the ambit of Business Auxiliary Service as defined under Section 65(19) of the Finance Act, 1994.Issue 2:Penalties were imposed on the appellants under various provisions of the Finance Act, 1994. The show cause notices invoked the extended period of limitation under the proviso to Section 73(1) on the ground of 'suppression of facts with intent to evade service tax.' The appellants contested the proposals in the show cause notices, leading to adjudication by the Commissioner.Issue 3:A valuation dispute arose regarding whether reimbursements received by the appellants from the bank, including salaries and infrastructural expenses, should be included in the taxable value of Business Auxiliary Service for service tax payment. The Tribunal examined relevant case laws and circulars to determine that reimbursements of expenses were not subject to service tax, supporting the appellants' contention.Issue 4:The question of whether the extended period of limitation was invocable in this case was considered. However, based on the finding that service tax was not leviable on reimbursements received by the appellants, the Tribunal concluded that the demand of differential service tax could not be sustained. Consequently, the impugned orders were set aside, and both appeals were allowed, disposing of the stay application as well.This detailed analysis of the judgment from the Appellate Tribunal CESTAT, Chennai, provides a comprehensive understanding of the issues involved, the arguments presented, and the final decision rendered by the Tribunal.