2021 (10) TMI 848 - AT - Service Tax

Reimbursable expenses in financial services not taxable: Supreme Court ruling sets precedent

The Supreme Court held that postal and courier charges incurred during the provision of Banking and other Financial Services, being reimbursable expenses, ... Reimbursable expenses - inclusion of reimbursable expenses in taxable value - taxable value for service tax liability - retrospective application of amendment to include reimbursables - precedent of M/s. Inter-continental Consultant and Technocrats Pvt. Ltd.Reimbursable expenses - taxable value for service tax liability - inclusion of reimbursable expenses in taxable value - Postal charges/courier charges that were reimbursed by the customers are not includible in the taxable value for determining service tax for the period in question. - HELD THAT: - The records show the postal/courier charges were reimbursable expenses and the period under consideration is within 12/2004 to 3/2009. During that period reimbursable expenses were not includible in the gross value for determining service tax liability; the statutory amendment to include reimbursable expenses in gross value took effect only from 14th May 2015. The Tribunal applied the ratio of the Hon'ble Supreme Court in Union of India v. M/s. Inter-continental Consultants and Technocrats Pvt. Ltd., and followed subsequent Tribunal precedents which held that postal/courier reimbursable charges are not to be included in taxable value. In view of that binding precedent and the temporal inapplicability of the 2015 amendment to the period under adjudication, the demand of service tax on the reimbursed postal/courier charges cannot be sustained.Demand of service tax on reimbursed postal/courier charges for the period 01.12.2004 to 31.03.2009 is set aside and the appeal is allowed.Final Conclusion: The Tribunal allowed the appeal, setting aside the demand, interest and penalties insofar as they related to reimbursed postal/courier charges for the period 01.12.2004 to 31.03.2009, applying the Supreme Court precedent that reimbursable expenses were not includible in taxable value prior to the 2015 amendment. Issues:Whether postal charges incurred during the provision of Banking and other Financial Services are includible in the gross value of taxable service for the purpose of service tax liability.Analysis:The appellant, engaged in providing taxable services, received postal recovery charges from customers during an audit, leading the department to include these charges in the taxable value for service tax assessment. The show-cause notice was issued for the period from 01.12.2004 to 31.03.2009, demanding service tax on these charges and proposing penalties. The original authority, followed by the Commissioner (Appeals), confirmed the demand, interest, and penalties, prompting the appeal.The appellant argued that postal charges are reimbursable expenses and should not be included in the taxable value, citing the Supreme Court's decision in a relevant case. The Tribunal's decisions in other cases supported this stance, emphasizing that reimbursable expenses were not includible in the taxable value during the relevant period. The amendment to include such expenses was effective only from 14th May, 2015.The issue was settled by the Supreme Court's judgment in a specific case, which was followed by the Tribunal in similar cases, concluding that postal and courier charges, as reimbursable expenses, should not be considered in the taxable value for service tax liability. Consequently, the impugned order was set aside, and the appeal was allowed with any necessary consequential reliefs.