Whether reimbursement of expenses is includible in taxable value of services?

PJ/Case Law/2020-2021/3626

AWASTHI BROTHERS VERSUS THE PRINCIPAL COMMISSIONER FINAL ORDER NO. 50722/2020 DATED 14.07.2020
ISSUE: - Whether reimbursement of expenses is includible in taxable value of services?
BRIEF FACTS: -The appellant is a partnership firm registered with the Service Tax department for the taxable service under the category of „Clearing and Forwarding services‟. The appellant as Clearing and Forwarding agent has been undertaking the work of Clearing and Forwarding for various companies such as M/s. Hindustan Unilever Limited, M/s. Berger Paints India Ltd., M/s. L G Electronics India Pvt Ltd. And M/s. Moser Baer India Ltd. etc. The appellant has been discharging service tax liability on the commission / remuneration received by it towards “Clearing and Forwarding service” received by it from the above-mentioned companies.

The internal audit link of the Department conducted audit of statutory records of the appellant and formed a view that taxable value has not been declared truthfully by the appellant. The Department was of the view that appellant adopted a novel modus operandi by which it bifurcated the amount received by it from various service recipients under two different categories of services i.e. „Clearing and Forwarding services‟ and “Goods and Transport Agency service”. The Department after detailed scrutiny of the financial ledgers and profit and loss account of the appellant for the period 2007-2008 to 2011-2012 reached a conclusion that the appellant had not declared the taxable value correctly as gross receipts as per section 67 of the Finance Act, 1994 for the purpose of payment of Service Tax.

Thus, the Department entertained a view that the appellant had short paid the service tax by an amount of Rs.1,91,28,126/- and accordingly a show cause notice dated 10 April, 2013 came to be issued to the appellant whereunder service tax amounting to Rs. 1,91,28,126/- has been demanded along with interest under the provisions of sections 73 and 75 of the Finance Act,1994. The penal provisions as provided under section 76, section 77 and section 78 of the Finance Act, 1994 have also been invoked in the show cause notice.

The matter got adjudicated by the Commissioner vide Order-in-Original dated 25 January, 2016. The Adjudicating Authority accepted the contention of the appellant that an amount of Rs. 11,16,86,641/- was received by the appellant during the period 2007-2008 to 2011-2012 on account of freight paid by the appellant on behalf of his principal companies and the same was reimbursed to them by the service recipients.

The Adjudicating Authority, after detailed examination, confirmed service tax amounting to Rs.59,32,070/- and the balance demand of Rs.1,31,96,056/- was dropped on the ground that same pertains to freight reimbursement on which Service Tax stands paid.

APPELLANT’S CONTENTIONS:- The learned advocate appearing for the appellant has contended that amount of Rs.5,33,35,626/- on which it has been alleged that no service tax had been paid are primarily receipts on account of following two items:

(i) The appellant received an amount of Rs.93,96,803/- from principal companies, who are the service recipients, towards the reimbursable expenses made by the appellant in the nature of depot expenses, weighing of machine charges, empty cartons charges, diesel expenses, housekeeping expenses etc. It has been contended by the learned advocate that the reimbursement of expenses in the course of providing clearing and forwarding service are not subject to levy of Service Tax as has been held by various Courts. The learned advocate has referred to following judgements in this regard.

Union of India vs. M/s. Intercontinental Consultants and Technocrats Pvt Ltd. [2018(10) GSTL 401(SC);

M/s. Sharma Cement Clearing Agency vs. CCE & ST, Ghaziabad [2018-TIOL-718-CESTAT-All.]

Pharmalinks Agency (I) Pvt. Ltd. vs. CCE, Pune III [2015 (37) STR (Tri-Mumbai) dated 19 August, 2014.]

Thus, he contended that from the entire demand confirmed by the Adjudicating Authority under the impugned Order-in-Original, an amount of Rs.10,81,313/- needs to be dropped as same is purely reimbursable expenses received by it as pure agent from principal companies.

(ii) Regarding the balance amount of receipt of Rs.4,39,38,823/- on which service tax of Rs.48,50,757/- has been confirmed in the Order-in-Original, the learned advocate contended that this amount of service tax has been calculated on the transportation charges received by the appellant from his principal companies for using its own trucks for transportation of goods in the local areas. It has vehemently been contended by the learned advocate that service tax is not payable on the charges received by the appellant for using its own truck. It has further been mentioned that profit and loss account of the appellant mentioned it very categorically that the above-mentioned amount was received by it again as reimbursement of the expenses incurred by it for providing „Goods Transport Agency service‟ using its own vehicle. It has been contended by the learned advocate that the principal companies namely, M/s. Hindustan Unilever Limited, M/s. Berger Paints India Ltd., M/s. LG Electronics India Pvt. Ltd. and M/s. Moser Baer India Ltd. have discharged their service tax liability upon this amount also under “Goods Transport Agency service‟.

The learned advocate has produced the certificate issued by M/s. Hindustan Unilever Limited on 05 May, 2016 where the details of freight charges and service tax amount have been indicated. The certificate indicates that the service recipient namely, M/s Hindustan Unilever Limited has discharged the service tax liability for freight charges paid to the appellant.

Similarly, in a letter addressed to the appellant by M/s L.G. Electronics, it has been confirmed that they have discharged the service tax liability on the charges paid to the appellant for transportation service. On the basis of these letters learned advocate claimed that as per CBEC instructions dated 24 April, 2002 if the service tax due on transportation of consignment has been paid or is payable by a person liable to pay service tax, the service tax should be not charged for the same amount from any other person to avoid double taxation. Since the entire service tax has been paid by the service recipient on the Goods and Transport Service provided by the appellant to the principal companies, no service tax liability arises on the appellant.

The learned advocate also contended that entire demand is also barred by limitation as no malafide intention, suppression of facts, wilful mis-statement or intent to evade the payment of service tax, is present in the present matter. It has further been added that it is purely a matter of interpretation and therefore, the proviso is not invokable in the present case. The appellant has relied on following judgements in support of this contention:

ISPAT INDUSTRIES VS. CCE, RAIGARH [2006 (199) ELT 509(TRI-MUM)];

NRC LTD. VS. CCE, THANE I [2007 (2009) ELT 22 (TRI-MUM)]

REASONING OF JUDGMENT:- After considering the submissions made by both the sides and after perusal of record of the appeal, it was held that so far as the issue pertaining to reimbursement of expenses incurred by the appellant on account of service recipient working as pure agent for his principals, the same is not includable in the assessable value for charging service tax. This view has been expressed by Supreme Court in Union of India vs.Intercontinental Consultants and Technocrats Pvt Ltd.reported in [2018 (10) GSTL 401 (SC)].

Thus, it is clear that expenses which have been reimbursed by the principals to the appellant working as a pure agent, cannot be included in the assessable value for charging the service tax. However, in order to determine how much amount was actually received as reimbursement of the expenses, the matter is remanded to verify the claim of the appellant.
The Adjudicating Authority has to verify the claims made by the appellant from the financial and other records and decide the issue as per the principles laid down by the Supreme Court in Union of India vs. M/s.Intercontinental Consultants and Technocrats Pvt. Ltd.

The second issue pertains to the service tax demand on an amount of Rs.4,39,65,823/- received by the appellant for using its own truck for providing transportation service to the principal companies for which it was working as Clearing and Forwarding agent. It has been contended and claimed by the appellant that service tax due on such amount had already been discharged by the service recipient namely, the principal company of the appellant. The records indicate that the service recipients such as M/s. Hindustan Unilever Ltd. have confirmed payment of service tax on the transportation of goods service provided by the appellant. However, this needs to be verified after detailed examination of the books of accounts and service tax return filed by the service recipient. Thus, this factual position should be examined by the Adjudicating Authority on the basis of records.

In view of the above discussions, the appeal is allowed by way of remand.

DECISION: -Appeal allowed by way of remand.
COMMENT: -The issue regarding inclusion of reimbursement of expenses incurred by the service provider on behalf of recipient of service is no longer res-integra and has been finally settled by the Apex Court in the case of Union of India vs. M/s.Intercontinental Consultants and Technocrats Pvt. Ltd. This case also lays down a good proposition that once tax has been paid by the recipient of service under reverse charge, tax cannot be demanded again from the service provider as it would lead to double taxation.
Prepared by- CA Neetu Sukhwani

Comments

PJ/Case Law/2020-2021/3626

Post a Comment

Query