IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal No. S/173/06 & S/PD/112/07 & S/159/07
(Arising out of Order-in-Original No. 15/2006 dated 10.05.2006 and OIO No.13/2007 dt 27.4.2007 passed by the Commissioner of Service Tax, Chennai)
Date of Hearing: 12.10.2007
Date of Decision: 12.10.2007
M/s MALABAR MANAGEMENT SERVICES PVT LTD
Appellant : (Rep. by Shri G. Natarajan, advocate)
Respondent : (Rep. by Shri B.L. Meena, SDR)
CORAM : Mr. P.G. Chacko, Member (Judicial)
Mr. P. Karthikeyan, Member (Technical)
Service Tax- Business Auxiliary Service – reimbursements of salaries and infrastructural expenses cannot be said to be the amounts “charged” by the service provider – not includible in value of taxable service
CASE LAW REFERRED
1. Bridgestone Financial Services Vs Commissioner of Service Tax, Bangalore, 2007-TIOL-810-
2. Scott Wilson Kirkpatrick (I) Ltd. Vs Commissioner of Service Tax, Bangalore, 2007-TIOL-110-
3. B.S. Refrigeration Ltd. Vs Commissioner of Service Tax, Bangalore, 2006-TIOL-1189-
4. Sangamitra Services Agency Vs CCE Chennai, 2007-TIOL-1335-
1. F.No.B 43/1/97 dt. 6.6.97
2. F.No.343/5/97 dt. 2.7.97
3. F.No.B11/3/98 TRU dt. 7.10.98
4. F.No.B11/1/2002 dt. 1.8.02
Final Order No. 1469, 1470/2007 dt 12.10.2007
Stay Order No.1237/07
Per P.G. CHACKO :
In appeal No.S/173/06, the challenge is against a demand of service tax of over Rs. 1.4 crores on Business Auxiliary Service for the period July’03 to March’05, confirmed against the appellants by the Commissioner of Service Tax, Chennai. Penalties imposed on the appellants under various provisions of the Finance Act, 1994 are also under challenge. In appeal No.S/159/07, the appellants have prayed for setting aside a similar demand of service tax (over Rs.1.5 crores) confirmed against them by the Commissioner in a separate order for the period 2005-06 as also for vacating the penalties imposed on them. We have taken up this appeal also for final disposal along with the above appeal, after dispensing with predeposit.
2. The appellants got themselves registered with the department as providers of Business Auxiliary Service w.e.f. 1.10.2004. They have been filing service tax returns and paying service tax in the said category w.e.f. 1.7.2003, the date on which Business Auxiliary Service was introduced in the Finance Act, 1994 for the purpose of levy of service tax.
3. The appellants were engaged by M/s. ICICI Bank Ltd. to market the bank’s personal loan products, for which service the appellants employed marketing executives who took up the task of telemarketing, contacting prospective customers, process documentation etc. to market the personal loan products of the bank and evaluate the customers and forward the prospects to the bank. In terms of the agreement with the bank, the appellants raised invoices for service charges on a monthly basis and the bank paid the same. Apart from this, the appellants received reimbursement, from the bank, of the salaries paid to their personnel deputed to render the above service to the bank as also of infrastructural expenses such as rent, telephone charges, electricity, stationery charges, internet charges, travel expenses, courier charges, advertisement etc. All these payments received by the appellants from the bank under invoices or debit notes were credited directly into the appellant’s bank account. But, in the service tax returns filed by them for the relevant periods, the service charges alone were declared to the department as the taxable value for the purpose of payment of service tax. The appellants voluntarily paid service tax on such value. After verification of their records and connected enquiries, the department took the view that the appellants should have paid service tax also on the reimbursements received by them from the bank towards staff salaries and infrastructural expenses incurred in connection with the rendering of Business Auxiliary Service to the bank. On this basis, show-cause notices were issued by the department demanding differential tax from the appellants and proposing penalties on them. The SCN for the period July’03 to March’05 was issued on 25.11.05 and the one for the period 2005-06 was issued on 19.1.07. Both the notices invoked the larger period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 on the ground of “suppression of facts with intent to evade service tax” by the noticee. The proposals in the SCNs were contested by the party. It was in adjudication of these SCNs that the impugned orders were passed by the Commissioner.
4. After examining the records and hearing both sides, we note that, though, in one of these appeals, it has been contended that the service provided by the appellants to ICICI Bank fell within the ambit of Section 65 (68) of the Finance Act, 1994 as service of manpower recruitment or supply agency, such a contention is conspicuously missing in the other appeal. We have also noted that the appellants got themselves registered with the department as providers of Business Auxiliary Service and were paying service tax in that category from July’03. They have been doing so voluntarily and not under protest. We have also found that the nature of service rendered by the appellants to ICICI Bank squarely attracted Section 65 (19) of the Finance Act 1994, which defined Business Auxiliary Service. This position seems to have been accepted by the appellants themselves in appeal No.S/159/07. They are precluded from contending that the service rendered by them to ICICI Bank upto March ’05 was something different from Business Auxiliary Service inasmuch as, undisputedly, the services rendered to the bank during the entire period covered by both the appeals were in terms of the same agreement.
5. Essentially, this case involves a valuation dispute. The question is whether the reimbursements received by the appellants from the bank, of salaries and infrastructural expenses were liable to be included in the taxable value of the Business Auxiliary Service for the purpose of payment of service tax. Another issue is whether the extended period of limitation was invocable in this case.
6. Section 67 of the Finance Act, 1994 defines ‘value of taxable service’ as the gross amount charged by the service provider for such service rendered by him. On the facts of the present case, “the service charges” collected by the appellants from the bank as consideration for the Business Auxiliary Service rendered by the former to the latter constitute “the gross amount charged by the service provider for such service”. Other amounts collected by them from the bank under debit notes were only reimbursements of salaries and infrastructural expenses and the same cannot be said to be the amounts “charged” by the service provider. In the case of Bridgestone Financial Services Vs Commissioner of Service Tax, Bangalore, 2007-TIOL-810-
7. Ld.counsel for the present appellants has also relied on a few circulars of the Central Board of Excise & Customs. In F.No.B 43/1/97 dt. 6.6.97, it was clarified, in respect of customshouse agents’ service and steamer agents’ service, that reimbursements of expenses were not chargeable to service tax. In F.No.343/5/97 dt. 2.7.97, it was clarified, in relation to Consulting Engineers’ Service and Manpower Recruitment Agents’ Service, that reimbursements of actual expenses were not subject to service tax. In F.No.B11/3/98 TRU dt. 7.10.98, it was clarified, in respect of Market Research Agency Services and Security Agency Services, that expenses reimbursed by the service recipient were not subject to service tax. In F.No.B11/1/2002 dt. 1.8.02, it was clarified, in respect of Cargo Handling Service, that service tax was not payable on reimbursements as in the case of service of Customs House Agent.
8. Thus the case law cited by ld.counsel and the Board’s clarifications are in support of the appellants’ contention that service tax is not leviable on the payments received by them from ICICI Bank by way of reimbursements of expenses. Therefore, the demand of differential service tax raised by the Commissioner on the appellants in respect of Business Auxiliary Service rendered by them to M/s. ICICI Bank Ltd. during the periods of dispute cannot be sustained.
9. In view of the above finding, we need not examine the limitation issue.
10. In the result, the impugned orders are set aside and both the appeals are allowed. The stay application in one of these appeals also stands disposed of.
(Operative part of the order was pronounced in open court on 12.10.2007)
Please refer the recent judgement delivered by CESTAST on service tax given below. Can anybody please send me the full text of the judgement.
Service Tax is not payable on reimbursable expenses
In the matter related to Clearing and Forwarding Services on the issue of levy of service tax on expenses reimbursed by the client, honorable tribunal has held that the appellants are not liable to pay any Service Tax on the reimbursable expenses.
It was clearly outlined in the contract between the appellant and their principal apart from commission that certain expenses are liable to be reimbursed. They are as follows:
- Accountant salary,
- Godown Keeper,
- Office Maintenance,
- Computer Programmer Salary,
- Computer Installation, etc.
CESTAST has allowed deduction of these expenses as reimbursement of expenses.
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