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PJ/Case law/2014-15/2227

Whether value under RCM will include repayment of travelling expenses?


Case:-  COMMISSIONER OF SERVICE TAX, CHENNAI Versus HEIDELBERG INDIA PVT. LTD.
 
Citation:- 2013 (29) S.T.R. 620 (Tri. - Chennai)
 

Brief facts:-The brief facts of the case are that the respondents are engaged in procuring orders for their parent company located in Germany for installation of printing machinery and maintenance of such machinery during the warranty period. During the course of audit, it was found that the respondents were availing services of their parent company for training of their employees outside India as well as in India. Therefore, they were required to pay Service Tax under the reverse charge mechanism under the category of “commercial coaching and training services”. Show cause notices were issued. Demands were confirmed invoking the extended period of limitation and thereafter the respondents filed appeals before the Commissioner (Appeals) who set aside the adjudication orders.
 
 
Appellant’s contentions:-The learned AR submitted that as per the agreement entered into between the respondents and their parent company, the employees of the respondent-company will go for training to the parent company where they will get training. Further, whenever it was required, the technical experts from the parent company will come to India at respondent’s place and shall give training to the employees of the respondent-company. In substance of the contentions, the service of providing coaching has been performed partly outside India and partly performed in India. Therefore, they are liable to pay Service Tax under the reverse charge mechanism under the category of ‘commercial coaching and training services’.
 
 
Respondent’s contentions:- The learned counsel for the respondent submitted that in this matter, the respondent’s employees had gone to the parent company located in Germany and got training over there and all the expenses on account of the services were only towards travel, accommodation and other expenses in relation to training. This contention was not controverted by the Revenue with any supporting evidence. On the other hand, it was alleged against the respondents that they had not produced evidence that their parent company had not charged any training fees. In fact, the parent company had given training without any charges but all the expenses incurred for training are only towards travel and accommodation expenses. In view of the same, the first appellate authority has rightly dropped the proceedings against the respondents. Therefore, the impugned orders be set aside.
 
Reasoning of judgment:- In the impugned order, the first appellate authority has discussed all the issues in detail and observed as under :-
“... It is an admitted fact that the appellant had filed returns for the relevant period. When the returns are filed regularly, it cannot be considered as suppression of facts as the Department is aware of the activities of the appellant. The Hon’ble Tribunal in the case of M/s. Panem Castings Pvt. Ltd. (2006) TIOL 1001 has held that extended period of limitation is not available if the party is filing returns with the authorities. Also, the Hon’ble Tribunal in the case of Carvision Products Ltd. - 2006 (194)E.L.T.126 has held that if the facts are known to the department, extended period of limitation is not available. Hence, I find the extended period of time limit cannot be invoked in the instant case. Thus, I hold that the demand period within one year prior to the date of issue of Show Cause Notice alone will survive in the instant case.
The appellant’s main contention is that the expenditure incurred in foreign exchange under dispute are not expenditure incurred by the company for training purposes but they were towards travel, accommodation and other expenses in relation to training; that the appellant had produced evidence to prove that they had not been charged any training fees during the disputed period; that the appellant incurred expenditure outside India and the provisions of Import of Service Rules not applicable; that Rule 7 of Valuation Rules, 2007 seeks to tax the actual value of consideration charged for the services provided excludes the reimbursements made to Foreign Service provider from the purview of the Service tax; that they had already produced two certificates from the foreign service providers to the extent that they are not charged training fee. It is an admitted fact by the Lower Adjudicating authority that the appellant had submitted the two certificates issued by the foreign service providers and also the sample invoices were submitted by the appellant. After going through the documents the lower adjudicating authority had observed vide para. 13 of the order that “... the assessee has not furnished schedules dealing the entire expenditure incurred by them in foreign exchange covering the period of demand which goes to indicate that the entire expenditure is not relating to air travel, food or accommodation”. The commissioner found force in the argument of the appellant that just because the invoices for the entire demand period was not submitted, it cannot be assumed or concluded that the amount for which the invoices were not submitted pertains to training fees. I also find that the lower Adjudicating Authority had failed to substantiate the allegation that the training fees was charged by the foreign service providers.
The Lower Adjudicating Authority had confirmed the demand that as per Rule 3(ii) of Services (Provided from outside India and received in India) Rules, 2006, where taxable service is partly performed in India, it shall be treated as performed in India and the value of such taxable service shall be determined under Section 67 of the Act and the rules made thereunder. However, I find that in the Show Cause Notice the demand was raised as per Section 66A of the Finance Act, 1994 read with Rule 2(1)(d)(iv) of Service Tax Rules, 1994 charging that the appellant as service receiver needs to pay Service Tax on the convertible foreign exchange paid to the foreign service provider. But the Lower Adjudicating Authority vide impugned Order-in-original confirmed the demand under Rule 3(ii) of Services (Provided from outside India and received in India) Rules, 2006 which is applicable to the services partly rendered in India. I find that the Lower Adjudicating Authority had traversed beyond the Show Cause Notice as the provisions under which the demand was raised in SCN and the provisions under which the demand was confirmed vide impugned Order-in-Original are contrary, thus making the impugned order not maintainable. Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 pertains to services rendered outside India and the provision of Rule 39(ii) of Services (Provided from outside India and received in India) Rules, 2006 pertains to services partly rendered in India as the very name of the Rules suggests. Moreover, the Lower Adjudicating Authority had failed to prove that the taxable service was partly rendered in India. In the absence of any such proof, I am inclined to accept the contention of the appellant that the expenditure incurred by the appellant is only towards Air travel, accommodation etc. and not the training fee as alleged by the Department. Moreover, the foreign company had issued certificate to the extent that they had not charged any fee for the course imparted. In the absence of any consideration, demand of Service Tax does not arise.”
In the impugned orders, the first appellate authority has dealt with the issue of limitation as well as the merit of the case and in merit of the case, he has arrived at that respondent’s main contention is that the expenditure incurred in the foreign exchange are not for training purpose but are only towards travel, accommodation and other expenses. That contention of the respondent has not been controverted by any supporting evidence by the Revenue. In this view, they are also of the opinion that respondents are not liable to pay any Service Tax under reverse charge mechanism on the services availed by them from their parent company as they have not paid any remuneration for the training charges. If at all any charges were paid for training outside India is not chargeable to Service Tax as per provisions of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.
 
Decision:- Appeals dismissed.
 
Comment:-  The analogy of this case is that service tax under reverse charge mechanism  is not chargeable on the  reimbursement regarding travelling and accommodation expenses  paid by Indian subsidiary to Foreign parent as there has been no charges paid for availing the coaching/ training services.
 
Prepared by:-Monika Tak

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