2023 (8) TMI 613 - AT - Service Tax

Tribunal rules in favor of bank recovery agent in service tax dispute

The Tribunal ruled in favor of the appellant, a recovery agent for a bank, in a case involving the inclusion of reimbursable expenses in the taxable value ... Valuation of services - pure agent services - getting certain reimbursements on account of salaries paid to their employees engaged in the work of recovery during the period 01.04.2010 to 10.07.2014 - inclusion in taxable value or not - period prior to amendment of Section 67 and Rule 5 - non-production of evidence in support of the claim to be Pure Agent of the recipient of service - section 67 of the Finance Act, 1994 - HELD THAT:- Issue in regards to levy of service tax on the reimbursement expenses prior to amendment of Section 67 and Rule 5 has been considered by Hon’ble Supreme Court in the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. [2018 (3) TMI 357 - SUPREME COURT] while deciding the Appeal filed by revenue challenging the order of Hon’ble High Court of Delhi in INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. VERSUS UOI. & ANR. [2012 (12) TMI 150 - DELHI HIGH COURT], referred to by in the order of CESTAT. Hon’ble Supreme Court while upholding the order of Hon’ble Delhi Court has observed only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. In view of the above decision of the Hon’ble Supreme Court for the period prior to 2015 the demand or service tax in respect of reimbursable expenses cannot be sustained - the same is set aside, demand and penalties imposed on the appellant are also set aside. Appeal disposed off. Issues Involved:1. Inclusion of reimbursable expenses in the value of taxable service.2. Demand of service tax, interest, and penalties.3. Applicability of the 'Pure Agent' concept.Summary:Issue 1: Inclusion of Reimbursable Expenses in Taxable ValueThe appellant, a recovery agent for ICICI Bank, claimed that reimbursements for salaries paid to their employees should not form part of the taxable value of services under Rule 5(2) of the Valuation Rules, 2006. The Commissioner (Appeals) and Deputy Commissioner rejected this claim, stating that the appellant failed to provide evidence to support their status as a 'Pure Agent.' The Tribunal considered the agreement between the appellant and ICICI Bank, which indicated that the appellant incurred certain expenditures on behalf of the bank and was reimbursed. However, the Tribunal found that the appellant did not meet the criteria of a 'Pure Agent' as defined in Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006.Issue 2: Demand of Service Tax, Interest, and PenaltiesThe Deputy Commissioner confirmed the demand of service tax amounting to Rs. 11,87,873 along with interest under Section 75 and imposed penalties under Sections 77 and 78 of the Finance Act, 1994. The Commissioner (Appeals) modified the order, extending the benefit of cum-tax value under Section 67(2) and allowing the option to pay a reduced penalty of 25% if the service tax and interest were paid within thirty days. The Tribunal set aside the demand and penalties, referencing the Supreme Court's decision in Union of India vs. Intercontinental Consultants and Technocrats Pvt. Ltd. (2018), which held that reimbursable expenses prior to the 2015 amendment to Section 67 could not be included in the taxable value.Issue 3: Applicability of the 'Pure Agent' ConceptThe Tribunal examined whether the appellant acted as a 'Pure Agent' for ICICI Bank. The agreement required the appellant to incur costs with the bank's approval and provide necessary receipts. However, the Tribunal found that the appellant did not meet the 'Pure Agent' criteria, as they were responsible for their employees' salaries and other costs, and there was no contractual agreement explicitly stating that the appellant acted as a 'Pure Agent' for the bank.Conclusion:The Tribunal held that the demand for service tax on reimbursable expenses prior to the 2015 amendment could not be sustained. Consequently, the demand and penalties imposed on the appellant were set aside, and the appeal was disposed of accordingly.