Pure Agent Reimbursements excluded from taxable value, reducing service tax liability and annulling demands based on them.

Where receipts recorded as tolls/green tax and traffic penalties were substantiated by documentary reconciliation (ledgers, Form 26AS, balance sheet) and treated as reimbursements paid as a pure agent, those amounts were excluded from the taxable value of services; consequently the residual taxable value fell below the exemption threshold under Notification No.33/2012-ST and related non-levy circulars, relieving the provider of service tax liability on those amounts. The reverse-charge notifications and exemption circulars were applied; computing liability by mechanical percentage comparisons was disapproved. Demands, interest and penalties premised on such reimbursed amounts were held unsustainable and were set aside in favour of the assessee.

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Issues: Whether the demand of service tax, interest, late fee and penalties confirmed by the adjudicating authorities in respect of amounts claimed as reimbursement of tolls/green tax and traffic penalties (and related receipts) is sustainable.

Analysis: The appeal examines the receipts shown in ITR/26AS/ledgers and whether amounts described as toll/green tax and traffic penalties form part of the taxable value of services or are reimbursable expenses acting as pure agent; whether reverse charge mechanism and notifications exempt or shift liability to the recipient; and whether extended period of limitation and penalties can be invoked. The legal framework invoked includes the proviso to Section 73(1) of the Finance Act, 1994 read with Section 142(8) and Section 174 of the CGST Act, 2017 for demand, Section 75 of the Finance Act, 1994 for interest, Sections 77 and 78 of the Finance Act, 1994 for penalties, Notification No.33/2012-ST (threshold exemption) and RCM Notification No.30/2012-ST dated 20.06.2012 and Circular No.152/3/2012 dated 22.02.2012 on non-levy of service tax on tolls. Documentary evidence (balance sheet, ledger, Form 26AS) was considered for reconciliation; where amounts were found to be reimbursements for tolls/green tax and penalties and treated as pure agent receipts they were excluded from taxable value. After excluding such reimbursable amounts, the taxable value fell below the exemption threshold under Notification No.33/2012-ST as amended. The adjudicating approach of computing liability by percentage comparisons was disapproved where inconsistent with statutory provisions and controlling notifications/circulars.

Conclusion: The demand of service tax, interest, late fee and penalties insofar as based on amounts held to be reimbursement of tolls/green tax and traffic penalties is not sustainable and the appeal is allowed in favour of the assessee.

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