2020 (1) TMI 638 - AT - Service Tax

Appellant denied threshold exemption, must pay service tax on total collected amount, eligible for specific exemptions.

Nestien Shipment Management Versus Commissioner of GST & Central Excise, Mumbai

The Tribunal held that the appellant was not entitled to threshold exemption for the first year as they collected service tax from clients immediately. ... Business Support Service - Business Auxiliary Service - appellant was collecting service tax from the clients from day one and not depositing the amount so collected with the department - Benefit of N/N. 30/2012 dated 20/06/2012 - ‘out-of-pocket’ expenses and ‘reimbursable expenses’ - extended period of limitation - HELD THAT:- In this case, the appellant is collecting service tax from their clients from day one. Therefore, they are not entitled to the benefit of threshold exemption for the first year and service tax is rightly demanded from them. As they have charged service tax from their clients from day one, the amount of service tax collected from the clients is required to be deposited with the department. The appellant is charging service tax @ 25% of the service provided by them on ‘manpower recruitment and supply agency service’ and is entitled for the exemption N/N. 30/2012 dated 20/06/2012. Further, ‘out-of-pocket expenses’ are exempted in full as per the said notification. The said benefit has already been granted by the Learned Commissioner (Appeals) in the impugned order. The amount of service provided by the appellant shall be treated as cum-tax, if the same is shown in the balance sheet as whole of the invoice price. The adjudicating authority is directed to quantify the demand as directed herein above and if some amount is payable by the appellant the same shall be paid by the appellant within 30 days along with interest after quantification of the demand of the service tax by the adjudicating authority - Penalty u/s 78 upheld. Appeal allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessee that has collected service tax from clients from the first day of operations is entitled to the first-year threshold exemption. 2. Whether amounts shown in the balance sheet as receipts must be treated as inclusive of service tax (cum-tax) for demand/quantification purposes. 3. Whether amounts charged as 'out-of-pocket expenses' and 'reimbursable expenses' are exempt under Notification No. 30/2012 dated 20/06/2012. 4. Whether the activity of manpower recruitment and supply attracts service tax at 25% of the service value and if any concessional treatment applies. 5. Whether the collector (assessee) who has recovered service tax from clients is under an obligation to deposit the collected tax and is liable for interest and penalty (including penalty under Section 78) if not deposited. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to first-year threshold exemption where service tax was collected from clients from day one. Legal framework: Threshold exemption rules grant relief to small service providers for the first year subject to conditions; entitlement is contingent on not having charged/collected service tax from clients. Precedent treatment: The Court relied on the factual application of exemption rules rather than distinguishing or overruling precedent; earlier administrative appellate findings regarding exemption were considered. Interpretation and reasoning: The Court found that where service tax has been charged to and collected from clients from the inception of provision of services, the element of benefit intended by the threshold exemption is not available; collection from clients negates the policy basis of the exemption. Ratio vs. Obiter: Ratio - collection of service tax from clients from day one precludes entitlement to first-year threshold exemption. (This is binding as applied to the facts.) Conclusion: The first-year threshold exemption is not available to an assessee who has charged and collected service tax from clients from day one; demands framed on that basis are sustainable. Issue 2 - Treatment of amounts shown in the balance sheet as cum-tax. Legal framework: Principles for valuation and tax incidence require determination whether invoice/receipt amounts are inclusive or exclusive of tax for quantification of demand. Precedent treatment: The Court accepted the administrative approach that where the whole invoice price is reflected in accounts without segregation, it may be treated as inclusive of tax; no explicit precedent was overruled. Interpretation and reasoning: If the assessee shows the whole invoice price in the balance sheet (i.e., does not segregate tax), the amount shall be treated as cum-tax for assessment/demand purposes; this affects quantification and the quantum of tax payable by the assessee if tax was charged to clients. Ratio vs. Obiter: Ratio - amounts reflected as whole invoice price in accounts may be treated as inclusive of tax for demand and quantification purposes. Conclusion: The adjudicating authority must treat such balance-sheet amounts as cum-tax and quantify demand accordingly. Issue 3 - Exemption of 'out-of-pocket expenses' and 'reimbursable expenses' under Notification No. 30/2012 dated 20/06/2012. Legal framework: Notification No. 30/2012 exempts certain classes of charges such as reimbursable/out-of-pocket expenses, subject to the terms of the notification and correct classification. Precedent treatment: The Tribunal accepted the view taken by the first appellate authority that such expenses fall within the exemption; no contrary precedent was applied. Interpretation and reasoning: The Court agreed that amounts characterized as out-of-pocket/reimbursable expenses fall within the exemption provided by the notification and therefore are not taxable; the Commissioner (Appeals) had granted this benefit and it was upheld. Ratio vs. Obiter: Ratio - out-of-pocket and reimbursable expenses, where properly characterized, are exempt under Notification No. 30/2012; this forms part of the operative decision. Conclusion: The assessee is entitled to full exemption on out-of-pocket/reimbursable expenses under Notification No. 30/2012; these amounts must be excluded from the taxable value when quantifying demand. Issue 4 - Taxability and rate application to manpower recruitment and supply agency services. Legal framework: The classification of services and applicable rates determine taxable liability; where a specific category (manpower recruitment and supply agency service) is identified, the relevant taxable percentage/rate must be applied. Precedent treatment: The Tribunal did not disturb the characterization of the service as manpower recruitment and supply and accepted the rate application relied upon in the adjudication (25% of service value as applied by the assessee). Interpretation and reasoning: The Court found that the assessee charged service tax at 25% on manpower recruitment and supply agency service and is entitled to the benefit of the specified notification insofar as it reduces taxable component in accordance with applicable instruments; the benefit to which the assessee is entitled was recognized and left for quantification. Ratio vs. Obiter: Ratio - where the activity is classified as manpower recruitment and supply agency service and the assessee has charged tax at the specified percentage, the concessional/exempt treatment under relevant notification applies as appropriate. Conclusion: The assessee is entitled to apply the specified rate/concession for manpower recruitment and supply agency service; the adjudicating authority must quantify the demand taking this into account. Issue 5 - Obligation to deposit collected tax, interest liability, and penalty under Section 78. Legal framework: Obligation exists to deposit service tax collected from clients into Government account; failure attracts interest and may attract penal consequences under statutory provisions including Section 78. Precedent treatment: The Court followed statutory obligation and prior administrative jurisprudence imposing deposit, interest and penalty where tax has been collected but not deposited. Interpretation and reasoning: Since the assessee collected service tax from clients from day one, the legal obligation to deposit the collected tax was triggered; therefore demands for tax must be met, and interest is payable from the relevant period until deposit. The Court also observed that penal consequences under Section 78 may follow as per law if applicable. Ratio vs. Obiter: Ratio - collection of service tax creates an enforceable duty to deposit; interest and applicable penalties (including under Section 78) are payable where lawfully imposed. This is part of the operative holding. Conclusion: The adjudicating authority is directed to quantify the demand after excluding exempt out-of-pocket amounts and applying relevant concessions; any tax found payable must be deposited within 30 days of quantification with interest, and penalty under Section 78 shall apply if legally payable. Cross-references and Procedural Direction All conclusions above are to be implemented in the quantification exercise ordered: the adjudicating authority must (a) exclude out-of-pocket/reimbursable expenses under Notification No. 30/2012; (b) treat balance-sheet invoice amounts as cum-tax where shown as such; (c) deny first-year threshold exemption where tax has been collected from clients from inception; (d) apply the applicable rate/concession for manpower recruitment and supply services; and (e) quantify tax, interest and any penalty under Section 78, with payment within 30 days of quantification if payable.