TaxTMI 
TaxTMI 
2022 (2) TMI 857
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....-2011 that the appellant had not discharged their service tax liability on the gross amount received from their clients for providing Business Auxiliary Services (hereafter mentioned as BAS). 2. It appeared that appellant had not paid service tax on the cost of the goods used for distribution to their clients channel partners. The appellant had accounted cost of such deliverable goods and materials in two heads, viz.; "redemption" and "sale of goods" for the year 2007-2008 to 2010-2011. For the year 2006- 2007, the appellant accounted the cost of the deliverable goods and materials in the head viz.; "redemption and reimbursements". After detailed scrutiny of accounts it appeared that appellant had discharged service tax only on management fee and had not included reimbursable expenses in the taxable value for discharging their service tax liability. The appellant was issued show cause notices for different periods. Show cause notice dated 20.04.2012 was issued for the period 2006-2011. Subsequently, show cause notice dated 22.02.2013 (for the period 2011-2012), show cause notice dated 21.04.2014 (for the period 2012-2013) were issued by the Commissioner of Service Tax, Delhi....
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....erms of remuneration, feedback, management fees, other costs, Government dues etc. were stipulated. The appellant was holding centralized registration for providing BAS to various Indian as well as overseas clients. The appellant discharged service tax on the consideration received for providing BAS and filed returns accordingly. 6. The appellant rendered its services to various clients by designing/executing various schemes, programs, strategies etc. as formulated or directed by the clients for the benefit of the clients by way of promotion of the sales of such clients. These schemes included loyalty and incentive schemes for promoting the business of the clients, such as distribution of gifts, rewards, etc. to the distributors and customers of the Appellant's clients. For distribution of the gifts under the promotional schemes, the Appellant purchased the items or gifts on behalf of its clients and delivered them to the distributors/customers of such clients. The gifts were distributed to the distributors/customers of such clients and debit notes were raised by the Appellant to its clients towards the cost incurred towards procurement of the gifts, etc. After confirmation ....
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....Order). It was also clarified that reimbursement of expenses were not booked to sales account since the parties were not debtors of the Appellant and the Appellant only charged management fees and booked it in the income account of the company. 10. The learned Counsel submitted that the entire demand is raised on reimbursable expenses. It is very much clear from the show cause notice as well as the impugned order that the demand is raised and confirmed on reimbursable expenses. The appellant had incurred various expenses for providing BAS to its' clients. These expenses were reimbursed in different ways to the appellant. As per Section 67 of the Act, as it stood during the relevant period, only the consideration received is subject to levy of service tax. The reimbursements received from the client for the expenses incurred for providing the services is not to be included. This issue is settled by the decision of the Hon'ble Supreme Court in the case of Union of India versus Intercontinental Consultants and Technocrats Pvt. Ltd. - 2018 (10) GSTL 401 (S.C.). In the said case, the Hon'ble Supreme Court held that the value of taxable service cannot be anything more or less than....
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....ce tax on management fee. Further in para 13, the adjudicating authority has stated that "redemption receipts and reimbursable receipts" are interchangeable terms used by the noticee (appellant) representing charges received from their clients on account of cash rebate, gift items and other expenses on behalf of their clients. Having so held, the adjudicating authority erred in proceeding to confirm the demand disregarding the judgment of the Hon'ble Apex Court. 15. Though the judgment of the Hon'ble Supreme Court was brought to the notice of the adjudicating authority, the same was not considered and the adjudicating authority chose to selectively cite the judgment of the Hon'ble Delhi High Court and proceeded to confirm the demand. The Apex Court has clearly held that Section 67 did not include reimbursable expenses for the period prior to 14.05.2015. 16. The judgment of the Apex Court in Intercontinental Consultants and Technocrats Pvt. Ltd. (supra) has been subsequently followed by the Tribunal in a number of cases to hold that reimbursable expenses could be included in the taxable value only w.e.f. 14.05.2015. 17. In AUL Services versus Commissioner of CGS....
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....on Steam Ship Company Ltd. - 1994 (1) AC 466. It was clarified in this case that the Legislatures which modified accrued rights or which imposed obligations or imposed new duties or attached a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect unless the legislation is for the purpose of supplying an obvious omission in a former legislation or to explain a former legislation. Since the amendment in Section 67 in the year 2015 do not fall in any of the later categories as discussed, it cannot be applied retrospectively. As a result of entire above discussion it stands clear that according to legislative intent of the Finance Act for the impugned period the value of taxable service shall be the gross amount charged by the service provider for such service and the valuation of tax for the service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service". 19. In Bajaj Allianz Life Insurance Co. Ltd. versus Commissioner of C.E. & S.T., Pune - III - 2019 (6) TMI 104 - CESTAT Mumbai held that:- "54. Hon'ble Supreme Court in the above case, at Para 29....
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....t to export of services. The BAS rendered by the appellant to its' overseas client located outside India against consideration received in foreign currency qualified as export of service under the provisions of Export of Service Rules, 2005 which were in force upto 30.06.2012. The CBEC vide Circular dated 24.02.2009, has clarified that the relevant factor for determining whether the service (BAS) was exported was the location of the service recipient and not the place of performance of service. The appellant had also relied on the decisions rendered in the cases of IBM India (P) Ltd. - 2010 (19) S.T.R. 520 (Tri. - Bang.), Microsoft Corporation (I) (P) Ltd. - 2014 (36) S.T.R. 766 (Tri. - Del.), Vodafone Essar Cellular Ltd. - 2013 (31) S.T.R. 738 (Tri. - Mumbai) and Canon India Pvt. Ltd. - 2018 (2) TMI 936 (CESTAT, Chandigarh). 22. Though it was export of services, the Appellant had discharged service tax on the management fee received from SSIPL. Merely because the Appellant paid tax on the services rendered to SSIPL erroneously and under a mistake of law, the Appellant is not barred or precluded from claiming that the service rendered by Appellant was export of service There....
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....tioned above and for a short duration. These services could be selling an event or profiling customers etc. These activities are characterized as "Business Auxiliary Services" as defined under Section 65 (105) (zzb) of the Finance Act, 1994 (hereinafter referred to as "The Act") upto 30.06.2012 and thereafter a "service" and "a taxable service" in terms of clause 44 and 51 of Section 65B of the Act. The Appellant is providing the aforesaid services under agreements executed with its clients located in India and outside India. As per terms of agreements, Appellant gets consideration which described in books of accounts as :- (i) Management fee; (ii) Redemption receipts ; (iii) Reimbursement receipts; and (iv) Amount received against sale of goods". 26. The findings of the adjudicating authority on 'redemption receipts and reimbursable receipts are as under :- "3.1 The redemption receipts and reimbursable receipts are interchangeable terms used by noticee representing charges received from their clients on account of cash rebate, gift items and other expenses on behalf of the clients namely; M/s JK Paper Limited, M/s JK Lakshmi Cemen....
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....mark up on the said expenses being incurred by the Appellant for providing the said services and therefore the total amount, including fixed monthly retainer/service fee, cost of cash reward/gift items/expenses and the mark up in form of 15% management fee, is in respect of service being provided by appellant to the clients and constitutes the value of such taxable service. 28. That as can be observed from Clause - V (A) of the agreement with M/s Symantec Software Solutions Private Ltd., it provides for a fixed service price of Rs. 70,500/- in a month in lieu of services provided by Appellant to M/s Symantec Software Solutions Private Ltd. Apart from this in terms of clause V (b) of the agreement, Appellant also charges for the various expenses such as (i) Collateral or additional web development, travel, telecom, communication, courier costs a tactical promotional expenses; (ii) Selection, procurement and redemption of rewards /gifts to consumer and retail channel partners of the client; and (iii) Purchase of media space in Indian print publications and web properties. The Appellant adds a mark up on the said expenses as per Clause V (B) of the Agreement in form of Manageme....
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....31. That as regards relying upon decision of Hon'ble Supreme court in the case of M/s Intercontinental Consultants & Technocrats Pvt. Ltd. holding that reimbursable expenses are not includible in the value of taxable service, it is argued by Revenue that the facts of the relied upon case are completely distinguishable from the present case. In the case of M/s Intercontinental Consultants & Technocrats Pvt. Ltd. the demand of service taxwas on the gross value including reimbursable and out of pocket expenses such as travelling, boarding and lodging, transportation, office rent, office supplies and utilities, testing charges etc. which, according to department, were essential expenses for providing the taxable services of consulting engineers under sub-rule (1) of Rule 5 of Valuation Rules. However, in the present case, the issue is that the Appellant has received amount from the service recipients on account of expenses for direct costs such as purchase of goods to be delivered to the distributors/dealers of its clients including a percentage of cost of goods/expenses and a separate fixed management fee/service fee for sale promotion activities. 32. further that, the ap....
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....3,229 SCN- II 2011- 12 16,13,17,124 - - 16,13,17,124 10.30% 1,66,15,664 SCN- III 2012- 13 8,24,86,920 - - 8,24,86,920 12.36% 1,01,95,383 SCN- IV 2013- 14 7,11,84,507 - - 7,11,84,507 12.36% 87,98,405 SCN- V 2014- 15 9,40,56,967 - - 9,40,56,967 12.36% 1,16,25,441 Grand Total 77,73,13,974 8,75,38,122 36. The above table shows that demand is raised for the different periods on redemption receipts, sale of goods receipts and reimbursement receipts. In para 10.1 the adjudicating authority observes as under:- "10.1 I observe that the while there is no dispute regarding payment of service tax on management fee, the show cause notices make allegation that the Noticee did not pay service tax on gross amount, i.e., 'redemption receipts', 'reimbursement receipts' and 'cost of goods used for distribution to their clients' viz. channel partners (distributors/consumers), which was received by the Noticee in the course of providing the business auxiliary services. As per the show cause notice, the aforesaid constituents of gross amount appeared includible in the taxable value in terms of Section 67(1) of the Fi....
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....lationship activity will be as per annexure (Attached Annexure A). VI. A Government/service Taxes at prevailing rates to be changed over and above the mentioned costs. 14. Other costs. i. Collateral and Creative Designing Costs : The creative art works for the welcome kit, theme and booster branding, channel communication etc. would be designed by EBPL for every year and the same would be charged as separate cost. ii. Any deviation/overspend on the Direct costs of Communication; Stationary etc. will be notified to JK Paper and approval taken before billing. iii. Any other direct cost of Printing, Gift procurement, relationship gifts etc. will be billed on actual and a management fees of 15% levied on the same. iv. A Government/service Taxes at prevailing rates to be changed over and above the mentioned costs". 40. From the agreement it can be seen that the Appellant has received fixed amount per month as management fee and also gets reimbursed the costs incurred for providing the services. Besides these, the Appellant also receives 15% of the costs as management fee. Although the demand raised in the SCN are only on reimburseme....
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....iable management fee. The variable management fee is 15% of the costs billed on actual. The percentage differs from agreement to agreement. The entire argument of the Revenue also has been harping upon this variable management fee and contending that this amount has to be included in the taxable value. We have to say that there is no such allegation (or figure) in the show cause notice that the appellant has not included in their taxable value this 15% management fee for discharging their liability. When the figures and description with regard to this amount in the nature of 15% management fee is so clear in the agreements, invoices, and accounts, we do not understand why the table in the show cause notice has not specified this description of 15% management fee. The SCN speaks about reimbursements only. In the show cause notice, the allegation is that the appellant received markup from the client on the purchase cost of deliverables and materials used for distribution. That as they have received mark up on the cost of such goods they cannot be considered as pure agents and therefore the reimbursable expenses are to be included in the total taxable value. There is nothing mentioned....
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....e II of show cause notice dated 19.04.2012 it is specifically and expressly shown in the fifth column that the demand is raised on the reimbursements received by the appellant. Interestingly though the adjudicating authority records a finding that the 15% variable management fee has to be subjected to service tax, has proceeded to confirm the demand on reimbursements as raised in the SCN. He does not discuss anything with regard to the argument of the appellant that they have paid service tax on these amounts as evidenced by the invoices. On examination of the records as well as considering the submissions of both sides, we find that the entire demand is raised on costs/expenses incurred by the appellants for providing the Business Auxiliary Service which was reimbursed by the clients. 45. The issue as to whether reimbursable expenses are to be included in the taxable value during the disputed period was considered by the Apex Court in the case of M/s Intercontinental Consultants and Technocrats Pvt. Ltd. (supra). The relevant part of the judgment of the Hon'ble Apex Court reads as under :- "21. Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the....
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....e provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub- section (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider. 26. It is trite that rules cannot go beyond the statute. In BabajiKondajiGarad, this rule was enunciated in the following manner : "Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the byelaw, if not in conformity with the statute in order to give effect to the statutory provision the Rule or bye-law has to be ignored. The statutory provision has ....
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..... There is no requirement that the goods procured have to be delivered to the client only. It cannot be expected that the goods have to be first given to the client and then delivered to the actual parties. It depends on the nature and kind of service agreed between the parties. 49. Another allegation is that the appellant has received mark up on the costs and expenses. This mark up as noted by the Revenue is variant management fee upon which service tax has already been discharged. From the agreements it is clear that the appellants were entrusted for providing a host of services. One of them was to procure goods from third parties for the client and deliver to the necessary parties. The amounts received were only reimbursement of expenses and we do not find any grounds by which the decision of the Hon'ble apex Court is not applicable to the facts of this case. 50. From the foregoing we have no hesitation to conclude that the demand is raised on reimbursable expenses and that these cannot be included in the taxable value for the disputed period. The decision of the Hon'ble Apex Court in Intercontinental Consultants and Technocrats Ltd. (supra) has been consistently f....