By TIOL News Service

MUMBAI, AUG 24, 2016: THE appellant provides ‘Commercial Training and Coaching' service and also under ‘Management Consultancy' service. They engaged the services of foreigners for extending management consultancy service to them and discharged service tax liability on the amount paid by them to such foreigners under reverse charge mechanism of Section 66A of the Finance Act, 1994.

Revenue says this is not enough. It is their case that during the visit of the foreigners to India, appellant had spent an amount for stay and out of pocket expenses in respect of the foreigners, which were found to be towards travel, lodging and boarding expenses, which has escaped service tax liability; that the said amount needs to be included in the value of the services rendered by the said foreigners as the same is spent in relation to the services rendered by the foreigners.

And the rest, as they say is history.

The appellant is before the CESTAT.

It is submitted that the additional amount paid by the appellant for the stay and travel expenditure to these foreigners was paid directly by them to the service providers like hotels and rent-a-cab services, etc. and these providers have raised the bill on which service tax liability has already been discharged by them; that adding these amounts for the reverse charge mechanism would be double taxation; that these reimbursements are excluded from service tax net as per the judgment of the Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. 2012-TIOL-966-HC-DEL-ST.

The AR justified the demand by submitting that the amount incurred for lodging and travel expenditure needs to be included as these amounts are supplementary to the services rendered by the foreigners.

The Bench observed that the Revenue allegation is without any merits because -

+ Firstly, there is no dispute as to the facts that the appellant had entered into a contract either orally or in writing that the foreigners render the services on an amount fixed after negotiations. It is also not in dispute that the service tax liability under Section 66A of the Finance Act, 1994 has been discharged by the appellant on the said amount paid to the foreigners. In our view, the contractual obligations between the appellant and foreigners for payment of services provided by them is already taxed under reverse charge mechanism. There is no other amount which has been paid by the appellant to the foreigners as is evident from the records.

+ Secondly, amount paid by the appellant for stay and travel expenditure of the foreigners is incidental expenses paid to the service provider like hotels and rent-a-cab services operators. The said amount being paid directly to the hotels and rent-a-cab operators, it cannot, by any stretch of imagination, be considered as an amount to be paid or payable to the foreigners who rendered the services of management consultancy.

+ Thirdly, Revenue has not disputed the fact that the hotels as well as rent-a-cab services have discharged service tax liability on the amounts paid by the appellant for the services rendered by them. If that be so, the same cannot be added as an amount paid to the foreigners and taxed under reverse charge mechanism.

+ It is also to be noticed that the said amount paid by the appellant is the actual expenditure incurred for the said foreigners during their stay in India and rendering services to the appellant.

+ The said amount can be taxed only as per the provisions of Rule 5(1) of the Service Tax Valuation Rules but the said rules are struck down as ultra vires by the High Court of Delhi in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. - 2012-TIOL-966-HC-DEL-ST.

+ Since the amounts paid by the appellant to the hotels and the rent-a-cab services, etc. are actual expenses, these amounts cannot be considered as an amount which are to be taxed under reverse charge mechanism.

Setting aside the impugned order, the appeal was allowed.

(See 2016-TIOL-2171-CESTAT-MUM)