Extended limitation and pure-agent reimbursements: departmental return comparisons alone do not prove suppression, and qualifying reimbursements are excluded from taxable value.

Extended limitation cannot be invoked merely from a comparison of departmental data with filed returns unless there is independent evidence of suppression, fraud or wilful misstatement; where a registered service provider regularly filed returns and no intent to evade tax was shown, the extended period is unavailable and the consequential demand, interest and penalty fail. Reimbursable expenses may be excluded from taxable value when they are incurred on behalf of the recipient as a pure agent and the Rule 5(2) conditions are satisfied; where the agreement provides separate remuneration and reimbursement of actual expenses, those reimbursements are not includable in the service tax base and the related tax, interest and penalty are unsustainable.

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Issues: (i) Whether the extended period of limitation could be invoked on the basis of Form 26AS and ST-3 return comparisons without proof of suppression or wilful misstatement. (ii) Whether reimbursable expenses received by the service provider were excludable from taxable value as amounts incurred as a pure agent under Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006.

Issue (i): Whether the extended period of limitation could be invoked on the basis of Form 26AS and ST-3 return comparisons without proof of suppression or wilful misstatement.

Analysis: The appellant was registered and had been filing returns regularly. The demand was raised from comparison of departmental data with statutory returns, without any independent verification or material to show deliberate suppression, fraud, or wilful misstatement. In the absence of evidence establishing intent to evade tax, invocation of the extended period was not justified.

Conclusion: The extended period of limitation was not invocable, and the demand, interest, and penalty sustained only on that basis were liable to be set aside.

Issue (ii): Whether reimbursable expenses received by the service provider were excludable from taxable value as amounts incurred as a pure agent under Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006.

Analysis: The agreement provided for separate fixed remuneration and reimbursement of actual expenses. The fixed remuneration had already suffered service tax. The reimbursed expenses were incurred on behalf of the recipient on actual basis, and the documentary record showed satisfaction of the conditions governing a pure agent under the amended valuation rules. Accordingly, such reimbursements were not includable in the taxable value.

Conclusion: The reimbursable expenses were excludable from the taxable value, and the associated service tax, interest, and penalty were unsustainable.

Final Conclusion: The impugned demand was held unsustainable both on limitation and on valuation, and the appeal was allowed with consequential relief.

Ratio Decidendi: A demand based only on comparison of departmental data with filed returns, without independent inquiry and without proof of suppression or wilful misstatement, cannot justify the extended period; and reimbursements received as a pure agent, where the Rule 5(2) conditions are met, are excluded from taxable value.

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