2025 (7) TMI 1456 - AT - Service Tax

Service tax demand on reimbursements set aside under Rule 5; penalty partly upheld under Section 77FA

The CESTAT Kolkata set aside the service tax demand of Rs. 41,99,006/- on 'Other Expenses' and 'Extra Hour Service Charges' for 2009-10 to 2012-13, ... Demand by invoking the provisions of Rule 5 of the Service Tax (Determination of Value) Rules, 2006 - value of ‘Other Expenses ’& ‘Extra Hour Service Charges’ for the financial years 2009-10 to 2012-13 - Interest for delayed payment of Service Tax for renting of Immovable Property Services - Demand of interest for Maintenance or Repair Services in terms of Section 75 of the Finance Act, 1994 - Invocation of extended period of limitation - Penalty u/s 77 of FA. Demand by invoking the provisions of Rule 5 of the Service Tax (Determination of Value) Rules, 2006 - value of ‘Other Expenses ’& ‘Extra Hour Service Charges’ for the financial years 2009-10 to 2012-13 - HELD THAT:- In the present case, it is found that apart from rent, the appellant also collect expenses which were incurred by them during the course of providing the taxable services. These expenses collected were merely incidental expenses which were reimbursed by the member companies for their staff performing extra/overtime duties. It is observed that as per Rule 5 of the Service Tax (Determination of Value) Rules, 2006, this incidental recovery of expenses cannot be added to taxable value of service. The Hon’ble Supreme Court has taken this view in the case of Union of India vs Intercontinental Consultants and Technocrats Pvt. Ltd. [2018 (3) TMI 357 - SUPREME COURT], wherein it has been held that 'Thus, 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.' Thus, by relying on the decision of the Hon’ble Apex Court, it is held that the demand of Service Tax of Rs. 41,99,006/- confirmed on the value of ‘Other Expenses’ & ‘Extra Hour Service Charges’ for the financial years 2009-10 to 2012-13, in the impugned order is not sustainable and hence the demand is set aside Interest for delayed payment of Service Tax for renting of Immovable Property Services - HELD THAT:- It is observed that during the period the issue of liability of service tax was being agitated before various forums. The Hon'ble High court of Delhi in its order dated 18.04.2009 in the case of Home Solutions Retail India Ltd. & Others v. UOI [2009 (4) TMI 14 - DELHI HIGH COURT] had struck down the levy as not being a service. Subsequently, an amendment was made to the 'Renting of immovable property service' in order to overcome the earlier judgment of the Hon'ble High court of Delhi. Accordingly, it is observed that the delay in payment of service tax was not intentional. The delay has occurred due to uncertainty of the levy itself. Thus, the demand of interest for the delay in payment of service tax on renting of immovable property service is not sustainable. The issue regarding the demand of interest on the tax paid under renting of immovable property service is no longer res integra in view of the judgment of the Hon’ble CESTAT Hyderabad in the case of D.S. NARAYANA & COMPANY PVT. LTD. Versus C.C. & C.E., VISAKHAPATNAM-II [2017 (4) TMI 897 - CESTAT HYDERABAD], wherein it has been held that 'interest on duty cannot be recovered from the respondents as liability to pay interest is in the nature of a quasi-punishment.' Thus, the demand of interest for the delay in payment of service tax on renting of immovable property service is not sustainable and hence the same is set aside. Demand of interest for Maintenance or Repair Services in terms of Section 75 of the Finance Act, 1994 - HELD THAT:- It is observed that the appellant has not made any submission. It is found that there is a delay in payment of service tax under the category of Maintenance or Repair Services and hence the appellant is liable to pay interest for the same. Hence, the demand of interest of Rs.1,03,220/- for the delay in payment of service tax for Maintenance or Repair Services upheld. Invocation of extended period of limitation - HELD THAT:- Extended period of limitation cannot be invoked in this case since there was no fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the Rules made thereunder with intent to evade payment of tax established in this case. Accordingly, the penalties imposed on the appellant on the allegation of suppression of facts, is not sustainable. Hence, the penalties imposed on the appellant set aside. Penalty u/s 77 of FA - HELD THAT:- As the appellant has not been registered with the department for rendering the ‘Renting of immovable property service’, the Penalty of Rs.10,000/- has been rightly imposed under Section 77 of the Finance Act, 1994 and hence the same is upheld. Appeal disposed off. ISSUES: Whether incidental expenses reimbursed by the service provider can be included in the taxable value under Rule 5 of the Service Tax (Determination of Value) Rules, 2006 read with Section 67 of the Finance Act, 1994.Whether interest for delayed payment of service tax on renting of immovable property service is payable where the levy was under judicial challenge and subsequently made retrospective by amendment.Whether extended period of limitation can be invoked in absence of fraud, collusion, or willful misstatement to evade tax.Whether penalty under Section 77 of the Finance Act, 1994 is sustainable for non-registration for renting of immovable property service.Whether interest under Section 75 of the Finance Act, 1994 is payable for delayed payment of service tax on Maintenance or Repair Services. RULINGS / HOLDINGS: Incidental reimbursements such as 'Other Expenses' and 'Extra Hour Service Charges' are not includable in the taxable value of service under Rule 5 and Section 67, as held by the Hon'ble Supreme Court in Union of India vs Intercontinental Consultants and Technocrats Pvt. Ltd., 2018 (10) G.S.T.L. 401 (S.C.), since 'the value of taxable service shall be the gross amount charged by the service provider 'for such service'' and reimbursements on actual basis are excluded.Interest for delayed payment of service tax on renting of immovable property service is not sustainable where the levy was under judicial challenge and subsequently validated retrospectively by amendment, as per the principle that 'liability to pay interest would only arise on default and is really in the nature of a quasi-punishment' and retrospective imposition of interest is impermissible, following the judgment in Star India Pvt. Ltd. and related precedents.Extended period of limitation cannot be invoked in absence of fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax; thus, penalties based on such grounds are unsustainable.Penalty under Section 77 of the Finance Act, 1994 for failure to obtain registration for renting of immovable property service is upheld.Interest under Section 75 of the Finance Act, 1994 for delayed payment of service tax on Maintenance or Repair Services is upheld due to absence of any contrary submission. RATIONALE: The valuation of taxable services is governed by Section 67 of the Finance Act, 1994 and Rule 5 of the Service Tax (Determination of Value) Rules, 2006. The Supreme Court clarified that only consideration charged 'for such service' is includable, excluding actual reimbursed expenses. The Finance Act, 2015 amended Section 67 prospectively to include reimbursable expenditure, confirming the prior exclusion.The retrospective amendment to the definition of 'Renting of Immovable Property Service' was enacted to overcome judicial decisions striking down the levy, notably the Delhi High Court judgment in Home Solutions Retail India Ltd. & Others v. UOI. The validation clause in the Finance Bill, 2010 deems prior actions as valid but expressly prohibits punishment for acts not punishable before the amendment. The principle from Star India Pvt. Ltd. prohibits retrospective imposition of interest as it constitutes a quasi-punishment.Precedents from CESTAT Hyderabad and Chennai corroborate that interest and penalty demands based on retrospective amendments are not sustainable if payment is made within reasonable time post-amendment, and no provision for retrospective interest payment exists.Penalties require establishment of fraud, collusion, or willful misstatement; absent such findings, imposition is improper. However, failure to register as required under Section 69 justifies penalty under Section 77.