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Valuation — Whether amount incurred as reimbursements to be included in the assessable value — Conflicting views of the Tribunal — C.B.E.C & C. Circular cannot be relied upon to support the claim of splitting part of amount as reimbursable expenses and rest as service charges — Costs for input services and inputs used in rendering services cannot be treated as reimbursable costs — Section 67 of the Finance Act, 1994 (the Act).
Facts
The appellant provided C&F agency services to several persons including M/s. Indian Oil Corporation Ltd. (hereinafter referred to as ‘IOCL’). A show-cause notice (SCN) was issued against the appellant, a registered assessee, for short payment of service tax of Rs.53,90,080 from April 2003 to March 2006 along with interest and penalty. The Tribunal (Referral Bench) while hearing the appeal noted the decision in the case of Sangamitra Services Agency v. CCE, Chennai (2007) TIOL 1335- CESTAT and a plethora of cases wherein it was held that “reimbursement charges should not form part of the gross value for the discharge of service liability”. The Tribunal (Referral Bench) also noted a contrary decision in the case of M/s. Naresh Kumar & Co. Pvt. Ltd. v. CST, Kolkata (2008) 11 STR 578 (Tribunal) wherein it was held that “the cost incurred on reimbursement of expenses if any, needs to be included in the gross value of the taxable services rendered.” In view of contrary decisions on the issue, the matter was referred to the Larger Bench. The appellants referring to the agreement with IOCL submitted that they were required to submit bills separately for both fixed operating expenses and service charges as a C & F agent. Also, according to the agreement, expenses incurred towards electricity and water charges, communication expenses, etc. were reimbursed on actual basis. Similar agreements were entered into with other parties. The appellant referred to the definition of value of taxable service which is defined as ‘gross amount charged for the services rendered’. In this behalf, the appellant submitted that expenses incurred on activities on behalf of the principal and recovered as reimbursements cannot be treated as part of value of C & F services. Referring to the various circulars, the appellant submitted that various services like Custom House Agent service and Steamer Agent service did not include several expenses incurred on account of exporter/importer. Also the value of Consulting Engineering service and manpower recruiting service did not include amount incurred on behalf of the clients which are reimbursed on actual basis.
The provisions of section 67 of the Act underwent changes w.e.f. 19-4-2006 only and the concept of consideration was introduced which included reimbursement also. The Revenue on the other hand submitted that during the relevant period the gross amount paid by the service recipient on which the service tax was charged included all the expenses incurred towards provision of service as service tax was a destination-based consumption tax. Also, during the relevant period Rule 6(8) of the Service Tax Rules, 1994 provided that “the value of taxable service in relation to services provided by a C&F agent to clients for rendering services of C&F operations in any manner shall be deemed to be gross amount of remuneration or commission (by whatever name called) paid to such agent by the client engaging such agent” and relied on the decisions of Nilesh Kumar & Co. Pvt. Ltd. [(2008) 11 STR 578 (Tri.)] and Harveen & Co. [(2011) TIOL 848 CESTAT-Del.]
Held
The Tribunal (Larger Bench) observed that on basis of various cases relied by the assessee and the Department, it was important to consider the scope of the term ‘reimbursements’. In case of service provider and service recipient, the question of reimbursements shall arise when the service recipient was legally bound to pay certain amount to any third party and the amount is paid by the service provider on behalf of the service recipient. The various circulars of the Board relied upon by the appellant clearly referred to amounts payable on behalf of the service recipient. However, the same could not be held to be in support of the claim of the assessee that the amount can be split as reimbursable expenses and the rest as towards service charges. The costs for input services and inputs used in rendering services cannot be treated as reimbursable expenses. No decision of the Division Bench of the Tribunal was shown by the assessee in their favour. Accordingly, it was held that the there was no conflict in the decisions rendered by the Co-ordinate Benches and the matter was returned to the Referral Bench for decision on merits.
