Service tax demand of Rs. 51 lakh set aside due to jurisdiction issues and expense reimbursements not taxable

The CESTAT Kolkata allowed the appeal filed by the appellant against service tax demand of Rs. 51,43,753/- for periods 2004-2005 and 2005-2006, ruling that Kolkata revenue officials lacked jurisdiction since service tax was paid at Mumbai where returns were filed. For 2006-2007, the tribunal held that amounts reimbursed by ABP to appellant for direct operational costs under written agreement were mere expense reimbursements, not taxable consideration, making the demand unsustainable on merits. The tribunal also set aside the extended period demand as time-barred, noting appellant was registered and regularly filing returns with proper transaction records.

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Issues Involved:

1. Whether the amount reimbursed by ABP to the Appellant towards the direct cost of ABP operations is leviable to Service Tax u/s 67 of the Finance Act, 1994 read with Rule 5(1) of the Service Tax Determination of Value Rules, 2006.
2. Whether the confirmed demand for the extended period is time-barred.

Summary:

Issue 1: Levy of Service Tax on Reimbursed Amounts

The core issue in the appeal is whether the amount reimbursed by ABP to the Appellant on an actual basis towards the direct cost of ABP operations shall be leviable to Service Tax in terms of Section 67 of the Finance Act, 1994 read with Rule 5(1) of the Service Tax Determination of Value Rules, 2006. The Appellant argued that the reimbursed amounts were purely in the form of reimbursement of cost of resources deployed for ABP as per the agreement, and no Service Tax is payable on such reimbursements. The Appellant relied on the Delhi High Court's decision in Intercontinental Consultants and Technocrats Pvt. Ltd. Versus UOI. & Anr [2012 (12) TMI 150], which held Rule 5(1) of the valuation rules as ultra vires. The Tribunal agreed with the Appellant, noting that the Appellant had collected the exact amount paid to PP Enterprise without any markup and that the reimbursement of expenses was not included in the Trial Balance, thus not treated as part of the income (consideration). Consequently, the Tribunal held that the entire confirmed demand is not sustainable on merits.

Issue 2: Time-Barred Demand for Extended Period

The Appellant contended that the extended period cannot be invoked as there was no evidence of fraud, collusion, suppression of fact, wilful misstatement, or contravention of any provision of the Act or Rules with the intent to evade payment of Service Tax. The Appellant cited the Supreme Court's decision in PADMINI PRODUCTS VERSUS COLLECTOR OF C. EX. [1989 (8) TMI 80 - SUPREME COURT], which established that when the matter involves interpretation of statutory provisions, the extended period of limitation cannot be invoked. The Tribunal found merit in the Appellant's submission, noting that the Appellant was duly registered with the Central Excise Department, filed regular ST-3 Returns, and all transactions were properly recorded in their Books of Account. The Tribunal also observed that the Appellant could have held a bona fide belief that no Service Tax was required to be paid on reimbursements, supported by the Intercontinental Consultants case law. Therefore, the Tribunal set aside the confirmed demand for the extended period on account of time bar.

Conclusion:

The Tribunal allowed the appeal both on merits and on account of limitation, setting aside the impugned Order and confirming that the Appellant would be entitled to consequential relief as per law.

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