2024 (8) TMI 207 - AT - Service Tax

Joint Development Agreement reimbursement costs not liable to service tax as they represent revenue share not service consideration

M/s. Real Gem Buildtech Pvt. Ltd. Versus Commissioner of CGST, Mumbai East

M/s. Real Gem Buildtech Pvt. Ltd. Versus Commissioner of CGST, Mumbai East - TMI Issues Involved:1. Confirmation of Service Tax demand on reimbursement costs.2. Applicability of Service Tax on joint development agreements.3. Inclusion of reimbursable expenses in the gross value of services.4. Invocation of the extended period for demand.5. Validity of new arguments at the appellate stage.Issue-wise Detailed Analysis:1. Confirmation of Service Tax demand on reimbursement costs:The Appellant contested the Service Tax demand of Rs. 12,02,59,606/- for the period from 2016-17 to 2017-18, which was based on the reimbursement costs received from the landowner under a Joint Development Agreement (JDA). The demand included interest and penalties under Sections 73, 75, 77, and 78 of the Finance Act, 1994. The Appellant argued that the reimbursement was a repayment of costs already incurred and not an additional service charge.2. Applicability of Service Tax on joint development agreements:The Appellant argued that under the JDA, both parties were jointly providing services to customers and not to each other. The agreement stipulated a 60:40 sharing basis, with the Appellant bearing the construction costs and the landowner providing the land. The Tribunal noted that the JDA indicated a joint venture rather than a service provider-client relationship, thus negating the applicability of Service Tax on the reimbursement.3. Inclusion of reimbursable expenses in the gross value of services:The inclusion of reimbursable expenses in the taxable value was debated, referencing Rule 5 of the Service Tax (Determination of Value) Rules, 2006, which was declared ultra vires by the Delhi High Court. The Tribunal emphasized that the Hon'ble Supreme Court's judgment in the Intercontinental Consultants case allowed for the inclusion of reimbursable expenses only prospectively from May 14, 2015. The Tribunal found that the reimbursement in question was part of the 100% construction cost, on which Service Tax had already been discharged.4. Invocation of the extended period for demand:The Tribunal observed that the extended period for demand was unjustified as the Respondent-Department was aware of the transactions since 2017, yet no action was taken until 2022. The Tribunal cited precedents, including the Raymond Ltd. case, to conclude that there was no suppression or misstatement by the Appellant, thus invalidating the extended period invocation.5. Validity of new arguments at the appellate stage:The Tribunal addressed the Respondent's objection to the Appellant raising new arguments about the reimbursement for public parking space construction. It was noted that these points were already mentioned in the Appellant's reply to the show-cause notice. The Tribunal accepted these arguments, citing the principle of mutuality and joint venture obligations, which are not subject to Service Tax.Conclusion:The Tribunal allowed the appeal, setting aside the order passed by the Principal Commissioner of CGST & CX, Mumbai East Commissionerate. The Tribunal concluded that the reimbursed amount was not liable for Service Tax, and the extended period for demand was inapplicable. The order provided consequential relief to the Appellant.