2023 (8) TMI 736 - AT - Service Tax

Service Tax Demand on Advertisement Charges Reimbursement Reversed

M/s. ABC Consultants Private Limited Versus Commissioner of Service Tax

The Tribunal set aside the demand for Service Tax on reimbursement of advertisement charges received by a 'manpower recruitment or supply agency,' citing ... Non-payment of Service Tax - taxability of reimbursement of advertisement charges from their clients - period from October 2007 to January 2010 - HELD THAT:- This Bench in M/S. ABC CONSULTANTS PVT. LTD. [2018 (2) TMI 1114 - CESTAT CHENNAI] has, after following the decision of the Hon'ble Madras High Court in the case of COMMISSIONER OF SERVICE TAX VERSUS M/S. SANGAMITRA SERVICES AGENCY [2013 (7) TMI 862 - MADRAS HIGH COURT], set aside the demand, holding that it can be seen from the advertisement charges, which was incurred to be a one-time occasion and was only expenses incurred on behalf of the client which are reimbursed on actual basis. We therefore follow the decision in the in the case of Sangamitra Services Agency and hold that the demand is unsustainable. Thus, the issue is no more res integra since the same has been decided in the appellant's own case for a different period by this very Bench. Further, the Revenue has also not made out any case for deviating from the above order. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts received as reimbursement of advertisement charges by a manpower recruitment/supply agency constitute taxable 'service' consideration liable to Service Tax. 2. Whether a prior decision of the same Bench, following the Madras High Court in Commissioner of Service Tax v. Sangamitra Services Agency, precludes re-litigation of the taxability of such reimbursed advertisement expenses for a different period in the absence of any distinguishing facts. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Taxability of reimbursement of advertisement charges Legal framework: Service Tax applies to consideration for taxable services; reimbursed expenses are taxable only if they form part of the consideration for the service rather than being mere disbursements on behalf of the principal/client. The test examines the nature of the charge (actual reimbursement at cost, contractual treatment, prior permission/ invoicing) and whether the service provider performed an advertising service or merely incurred expenses on behalf of the client. Precedent Treatment: The Tribunal followed the Madras High Court decision in Sangamitra Services Agency, which treats genuine reimbursements incurred and invoiced at cost as not constituting taxable consideration where the supplier does not render the reimbursed activity as its own service. Interpretation and reasoning: The appellant is a manpower recruitment/supply agency and not an advertising agency; the agreement expressly characterises items such as media/ad expenses as expenses to be incurred on behalf of the client with prior permission and invoiced at cost. The advertisement charge at issue was a one-time expense incurred on behalf of the client and reimbursed on actuals. Under these facts the amount paid by the client is a pass-through reimbursement, not consideration for an independent taxable advertising service rendered by the appellant. Ratio vs. Obiter: Ratio - Where (a) the provider's primary service is not the reimbursed activity, (b) the contract requires prior client permission for the expense, and (c) reimbursement is invoiced at cost as a pass-through, such reimbursed expenses do not constitute taxable consideration for service tax purposes. Observations applying the ratio of Sangamitra Services Agency to the facts are binding on the present decision. Conclusion: The amounts received as reimbursement of advertisement charges are not taxable as service consideration in the facts of the case; the demand based on taxability of those reimbursements is unsustainable and is set aside. Issue 2 - Preclusive effect of prior Bench decision following Sangamitra and applicability to the present period Legal framework: Principles of consistency and issue-estoppel within appellate adjudication counsel that a Bench decision on an identical legal issue and comparable facts may be followed in subsequent appeals, absent material distinction or persuasive reason to depart. Precedent Treatment: The Bench relied on its earlier Final Order, which followed the Madras High Court (Sangamitra) and quashed similar demands in the appellant's own case for a different period. Interpretation and reasoning: The present appeal raised the same legal question as decided earlier by the same Bench and the decision applied the same authoritative High Court precedent. The Revenue did not demonstrate any material fact distinguishing the earlier decision or provide reasons to deviate. Consequently, the earlier order is followed as the issue is no longer res integra before this Bench. Ratio vs. Obiter: Ratio - When a Bench decision, following a controlling High Court precedent, addresses the identical legal issue on substantially similar facts, later Bench should follow that decision unless distinguishing facts or contrary authority are shown. Conclusion: The impugned order is set aside by applying the prior Bench decision; the appeal is allowed with consequential reliefs, and the Revenue's demand is rescinded for the period in question. Scope limitation The decision is confined to the taxability of reimbursement of advertisement charges and the application of the earlier Bench/High Court precedent; no separate adjudication or altering conclusion is made in respect of other allegations (e.g., input service credit claims) beyond the identified core issue.