Whether reimbursement of expenses includible in the taxable value of service if such expenses are integrally connected with provision of service?

PJ/Case law/2013-14/1922

Case:-COMMISSIONER OF C.EX., INDORE VERSUS INTERNATIONAL LOGISTICS

Citation:-2013(31) S.T.R. 563 (Tri.-Del.)

Issue:-Whether reimbursement of expenses includible in the taxable value of service if such expenses are integrally connected with provision of service?

Brief Facts:-Revenue came in appeal being aggrieved by the First Appellate Order holding that the services of supply of manpower and security services involving reimbursement of expenses shall not form part of the assessable value in respect of taxable services of clearing and forwarding service provided by the appellant.
Representative for the Revenue submits that the expenses which are essentially required and integrally connected with the services of clearing and forwarding and cannot be disintegrated to make the services performable that shall not be excluded while determining taxable service. Decision of Adjudicating Authority was ruled out by the First Appellate Authority for no good reason. Therefore, adjudication order may be restored.

Appellant Contentions:-The Departmental Representative relies on the decision of Larger Bench in M/s. Sri Bhagavathy Traders in Service Tax Appeal No. 111 of 2008 [2011 (24) S.T.R. 290 (Tribunal-LB)] holding reimbursement of expenses shall form part of assessable value.

Respondent Contentions:-The respondent submits that the law is clear about no inclusion of expenses to the assessable value. Therefore, the respondent did not include the expenditure incurred for manpower and security services provided. It was grievance of the respondent before the Appellate Authority that in case adjudication is upheld, the respondent is entitled to the benefit of Cenvat credit. That was specifically pleaded in paragraph (viii) of the First Appellate Order because the Appellate Authority allowed the appeal in toto. That particular point was not specifically dealt by the order appealed. It was also submitted by the respondent that it had filed respective balance sheets and returns before the authorities and there was no suppression made. Therefore, penalty cannot be imposed when the law was in a debatable stage.
Ld. Representative for the assessee repeatedly prays that if at all liability is determined, it should be re-quantified granting benefit of Cenvat credit and waiving penalty.

Reasoning of Judgment:-We have considered the submission from both sides and perused the record. We have no disagreement to hold that expenses incurred to provide taxable services shall be part of assessable value if such expenses are inseparable and are integrally connected with the performance of the taxable services. Such expenses shall necessarily form part of the assessable value. This has been consistent view of the Tribunal in several cases on this count. Larger Bench of the Tribunal in the case of M/s. Sri Bhagavathy Traders, which has been cited by the Representative for the revenue has held that expenses which are connected providing taxable service shall be taxable. Therefore, respondent is not entitled any relief on account of expenses not disputed for inclusion while determining assessable value.
Permissibility of Cenvat credit is subject to verification and decision of lower Authority while determining the ultimate quantum of demand of Service tax. Since the claim is to set off Cenvat credit against liability incurred, it is the respondent who shall lead entire evidence before the Adjudicating Authority, to support its claim and satisfy him. Accordingly holding assessable value shall include reimbursable expenses, matter needs remand to consider Cenvat issue.
No doubt, law was in debatable stage and the matters travelled to the Larger Bench for reaching to finality. Consequently, there shall be no penalty under Section 76 and 78 of the Finance Act, 1994. By this, we do not say that mere filing of balance sheet and return amounts to disclosure of the fact to the Revenue Authorities.
In view of the above, Revenue succeeds partly to the extent indicated above and the matter goes back to the Adjudicating Authority for re-determination of the quantum of tax payable deciding Cenvat issue afresh by a reasoned and speaking order.

Decision:-Appeal partly allowed.

Comment:-The essence of this case is that the reimbursable expenses that are integrally connected with the provision of service should form part of the taxable value of service for the purpose of service tax and as the issue under consideration was a matter of constant litigation, penalties are not imposable. It is also worth mentioning here that recently, Delhi High Court has declared Rule 5 regarding inclusion of reimbursable expenses in the taxable value of service as ultra vires the charging section in the case of Intercontinental & Technocrafts Pvt. Ltd.

Comments

MEHUL SHAH on 25 February, 2014 wrote:

Thanks for the same meaning if we provide service and even if we have inccured exps and same is one to one reimbursed then also it is taxable ... say for example if we took responsibility of organising event and have spent money on hotel stay of artists and the same is reimbursed then it is taxable ..Am I right ???
MEHUL SHAH on 09 December, 2013 wrote:

thanks for this but still I want to ask your advice in this case that is reimbursement of expenses are liable to service tax ?? please guide us ....

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PJ/Case law/2013-14/1922

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