By TIOL News Service

NEW DELHI, AUG 28, 2017: THE matter pertains to the liability of service tax on the reimbursable amounts which have been collected on the items like Security Guards, Videography Police, Escorts, DM/CMM charges etc.

The appellant has been paying service tax only on the commission received and in some cases on enforcement charges also.

Against the order passed by the Commissioner(A), the appellant is before the CESTAT.

The Member (T) extracted the findings from the order passed by Commissioner(Appeals) and added -

"6.1 … the appellant has not been able to prove that the subject expenses do not pertain to the items/activities services which are not integrally linked with their main activity/service of recovery agent. Without the subject items/activities for which the appellant has taken reimbursement from the clients, the activity of recovery agent cannot be performed by them. The fact of reimbursement of expenses for the subject items/activities by the clients cannot make any difference to the conclusion that the expenses incurred on various items like security guards, police escorts, videography charges and so on are integrally linked with the appellant's service of recovery agent. This is also the fact that the appellant has been charging service tax from the service recipients against reimbursable amounts spent for the subject items."

The Member (T) concluded that the bench is in agreement with the findings given in the impugned order by the Commissioner (Appeals) on the above count as well as in the matter of invocation of extended period of limitation except the aspect of denial of CENVAT credit, which matter was remanded.

The Member (Judicial) placed reliance on the Delhi High Court decision in Intercontinental Consultants & Technocrats Pvt. Ltd. =  2012-TIOL-966-HC-DEL-ST and concluded that the issue of reimbursable expenses is squarely covered in favour of the appellant. However, for scrutiny of the invoices, the matter is required to be examined by the lower authorities. On the issue of limitation, the Member (J) held that since the issue was not free from doubt and was referred to Larger Benches, the assessee could not be held guilty of any malafide or suppression so as to invoke the extended period.

The following difference of opinion was, therefore, placed before the President for reference to the third Member -

i) Whether the demand has to be upheld by not excluding the reimbursable expenses from the value of the services as held by Ld. Member (Technical) or the same have to be excluded subject to verification of the agreement between the appellant and the banks and the invoices etc. as held by Ld. Member (Judicial).

ii) Whether the extended period of limitation has been rightly invoked as held by Ld. Member (Technical) or the demand is barred by limitation as held by Ld. Member (Judicial) and as such, the appeal is to be allowed in toto, on the said disputed issue.

The third Member on reference held thus -

++ It is seen that the impugned order as well as the Ld. Member (T) placed reliance on the decision of the Larger Bench in  Bhagvathy Traders  -  2011-TIOL-1155-CESTAT-BANG-LB. The said decision is not a ratio for disallowing reimbursable expenses for exclusion from the taxable service. In fact, the said decision only framed certain guidelines stating that reimbursable expenses can be excluded only when the service provider was not under any obligation to incur such expenses and the same is done on behalf of the service recipient.

++ The facts of the present case along with connected documentary evidences are to be examined in line with the observation of the Tribunal in  Shree Bhagvathy Traders (supra)  and Hon'ble Delhi High Court in  Intercontinental Consultants & Technocrafts Pvt. Ltd. (supra) . This can be done by the Original Authority for a fresh decision. As such, the findings of the ld. Member (J) with reference to remand of the matter to the Original Authority is correct.

++ I note that the period involved is 1.5.2006 to 31.3.2009 and the notice was issued on 8.10.2010. It may not be incorrect to say that the whole issue has been subjected to multiple interpretation and also resulting in the Hon'ble Delhi High Court even striking down the provision of Rule 5(1) as ultra vires .

++ Admittedly, the appellants maintained records of all the expenses and the present demand was based on such records. In such situation, I find that the demand cannot be invoked by alleging willful misstatement, fraud and intention to evade payment of tax. Here, the extended period was invoked on the ground that the information was not disclosed to the Department. When there is a bonafide doubt based on the interpretation of the legal provisions, the question of suppression and willful mis-statement cannot be sustained.

And, therefore, the reference made on the difference of opinion was answered thus -

(i) the amounts claimed to be re-imburseable expenses can be excluded from the assessable value subject to verification of the agreements between the appellant and the banks and the supporting documents like invoices, etc to be submitted by the appellant.

(ii) The extended period of limitation cannot be sustained in the facts and circumstances of the present case.

Resultantly, by a majority view, the impugned order was set-aside and the appeal was allowed with consequential relief on the point of time bar.

(See 2017-TIOL-3115-CESTAT-DEL)