2024 (11) TMI 1049 - AT - Service Tax

Statutory charges for electricity, water, and legal fees are reimbursable expenses excluded from taxable value under Section 67.

M/s. Sobha Developers Ltd. Versus Commissioner of Central Excise and Service Tax, Large Tax Payers Unit, Bangalore

CESTAT Bangalore held that statutory charges collected by appellant for electricity, water, and legal fees constituted reimbursable expenses and could not ... Service tax on amounts related to execution of statutory obligations - whether the amounts collected by the appellant from their customers towards KEB, BWSSB and Advocate fees should be treated as taxable value u/s 67 of the Finance Act, 1994 read with Rule 2A of the Service Tax (Determination of Value) Rules - as argued service tax is not payable by the appellant prior to 01.07.2010 in view of the Board Circular No. 108/02/2009-ST dated 29.01.2009 and the amounts related to execution of statutory obligations cannot be levied to service tax HELD THAT:- The charges collected in dispute referred above are electricity charges, water charges and legal fees. These are statutory charges to be collected by the appellant and to be paid to the respective authorities are in the nature of reimbursable expenses. The issue of inclusion of reimbursable charges in the taxable value is no longer res integra in view of the decision by the Supreme Court in the case of Union of India Versus Intercontinental Consultants and Technocrats Pvt. Ltd. . [2018 (3) TMI 357 - SUPREME COURT] In view of the above, as rightly claimed by the appellant, the above statutory reimbursable amounts cannot form part of the gross amount on which service tax is to be charged. Therefore, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law. Issues Involved:1. Taxability of 'other charges' collected by the appellant under the category of 'Construction of Residential Complex Service.'2. Applicability of service tax prior to 01.07.2010.3. Inclusion of reimbursable expenses in the taxable value.4. Invocation of extended period of limitation.5. Eligibility for exemption schemes and input credit.6. Imposition of interest and penalties.Issue-wise Detailed Analysis:1. Taxability of 'Other Charges':The primary issue in the appeal was whether the amounts collected by the appellant towards BESCOM charges, BWSSB charges, and advocate fees should be treated as taxable value under Section 67 of the Finance Act, 1994. The appellant argued that these charges were statutory in nature and thus reimbursable, which should not be included in the taxable value. The appellant contended that these charges were collected to fulfill statutory obligations and did not constitute consideration for taxable services. The tribunal found that these charges were indeed statutory and reimbursable, referencing the Supreme Court's decision in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., which held that reimbursable expenses are not part of the taxable service value.2. Applicability of Service Tax Prior to 01.07.2010:The appellant argued that prior to 01.07.2010, they were not liable to pay service tax on construction services due to the absence of a machinery provision to ascertain the value of service involved. The tribunal noted that the Explanation to Section 65(105)(zzzh) was inserted with effect from 01.07.2010, which deemed the construction of a complex intended for sale as a service provided by the builder. The tribunal upheld the appellant's argument, supported by various judicial precedents and departmental circulars, that service tax was not applicable before this date.3. Inclusion of Reimbursable Expenses in Taxable Value:The tribunal addressed whether reimbursable expenses such as electricity and water charges should be included in the taxable value. Citing the Supreme Court's judgment, it was held that only the gross amount charged for providing the taxable service should be considered, and reimbursable expenses could not be included. This interpretation was consistent with the unamended Section 67 and its subsequent amendment effective from 14.05.2015.4. Invocation of Extended Period of Limitation:The appellant contended that the show cause notice issued on 18.04.2012 for the period 2006-2011 was beyond the normal limitation period. The tribunal found that mere omission to disclose does not amount to suppression of facts unless there is a deliberate intent to evade duty. Given the department's circulars and the appellant's bona fide belief that service tax was not applicable prior to 01.07.2010, the tribunal concluded that the extended period was not invokable.5. Eligibility for Exemption Schemes and Input Credit:The appellant argued for the applicability of exemption schemes under Notification No.01/2006-ST and Notification No.12/2003-ST, which exempt certain values from service tax. They also claimed eligibility for input credit if deemed liable for service tax. The tribunal did not specifically rule on the applicability of these exemptions, as the primary demand was set aside, but acknowledged the appellant's right to claim such benefits.6. Imposition of Interest and Penalties:The tribunal addressed the appellant's contention that interest and penalties under Section 78 of the Finance Act, 1994, were not applicable. It was held that since the demand itself was not sustainable, the imposition of interest and penalties was also not justified. The appellant's bona fide belief and the absence of intent to evade duty supported this conclusion.Conclusion:The tribunal set aside the impugned order, allowing the appeal with consequential relief as per law. The decision emphasized that statutory reimbursable amounts could not form part of the taxable value, and service tax was not applicable to the appellant's activities prior to 01.07.2010.