Case Law Details
ABC Consultants Private Limited Vs Commissioner of Service Tax (CESTAT Chennai)
Service Tax not leviable on reimbursement charges
The CESTAT, Chennai, in M/s ABC Consultants Pvt. Ltd. v. Commissioner of Service Tax [Service Tax Appeal No. 40688 of 2014 dated August 04, 2023] set aside the demand of service tax on reimbursed amount and held that the assessee only paying advertisement charges on behalf of clients which was later reimbursed to him on actual basis thus the demand of service tax is unsustainable.
FACTS:
M/s ABC Consultants Pvt. Ltd. (“the Appellant”) is rendering ‘manpower recruitment or supply agency’ service.
Revenue Department (“the Respondent”) initiated the verification of accounts and found that the Appellant had received INR 11,86,998/- towards reimbursement of advertisement charges from the clients for the period of October 2007 to January 2010, on which apparently, service tax was not paid.
A Show Cause Notice dated April 20, 2010 (“the SCN”) was issued proposing the demand of service tax of INR 1,46,713/- on advertisement reimbursement charges. The Appellant filed the reply denying the demand of service tax. However, the Adjudicating Authority vide an order dated November 18, 2010 (“the OIO”) confirming the demand of service tax proposed in the SCN.
Aggrieved by the OIO, the Appellant filed an appeal before the Appellate Authority challenging the OIO who vide an order dated December 20, 2013 (“the OIA”) confirmed the demand of service tax and recalculated the demand of service tax at INR 1,30,574/-.
Aggrieved by the OIA, the Appellant filed an appeal before the CESTAT, Chennai challenging the OIO.
Issue:
Whether reimbursable charges attract service tax liability?
Held:
The CESTAT, Chennai in Service Tax Appeal No. 40688 of 2014 held as under:
- Relied upon the judgement of Commissioner of Service Tax v. Sangamitra Services Agency [2014 (33) S.T.R. 137 (Mad.)] wherein the Hon’ble Madras High Court held that the agreement between the assessee and client speaks about reimbursable expenses viz., media, travel and stay costs etc., and these have to be invoiced at cost. The reimbursable charges were incurred for one-time occasion and was only expenses incurred on behalf of the client which were reimbursed on actual basis therefore, the demand of service tax was unsustainable.
- Held that, the Appellant was only paying advertisement charges on behalf of clients which was later reimbursed to him on actual basis thus, the demand of service tax was unsustainable.
______________________
Introduction: The case of ABC Consultants Private Limited Vs Commissioner of Service Tax (CESTAT Chennai) centered around the issue of whether service tax is leviable on the reimbursement of advertisement charges. The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Chennai was to decide whether ABC Consultants, who are engaged in ‘manpower recruitment or supply agency’ service, should be taxed for the reimbursement they received towards advertisement charges from their clients for a specific period.
Analysis:
1. Background: Revenue authorities had issued a Show Cause Notice, alleging that ABC Consultants failed to pay service tax on the reimbursement of advertisement charges and availed input service credit on various services.
2. Appellant’s Argument: ABC Consultants denied any tax liability and referred to a previous order in their favor by the same bench.
3. Respondent’s Argument: The Assistant Commissioner supported the lower authorities’ findings, insisting on the validity of the tax demand.
4. CESTAT’s Decision: The Tribunal considered the previous order and observed that ABC Consultants were engaged in rendering manpower services and not advertisement agency services. Following a High Court precedent, it set aside the demand, holding that the reimbursement of advertisement charges did not fall under taxable services.
5. Legal Principle: The ruling affirms the principle that the taxability of a transaction must align with the nature of services provided, and mere reimbursement of expenses does not necessarily lead to tax liability.
Conclusion: The ruling in ABC Consultants Private Limited Vs Commissioner of Service Tax by CESTAT Chennai reflects the nuanced understanding of tax laws and provides clarity on the non-taxability of reimbursement charges in specific circumstances. By closely examining the nature of services rendered by ABC Consultants and referring to past decisions, the Tribunal ensured a consistent and just interpretation of the law. The verdict reinforces the importance of the correct classification of services in tax assessment and emphasizes the importance of adhering to precedent in legal adjudication.
FULL TEXT OF THE CESTAT CHENNAI ORDER
1. This appeal is filed against the Order-in-Appeal No. 364/2013 (MST) dated 20.12.2013 passed by the Commissioner of Customs, Central Excise & Service Tax (Appeals), Chennai.
2. Brief facts leading to the present dispute are that the appellant is rendering ‘manpower recruitment or supply agency’ service. It is the case of the Revenue that on verification of accounts of the appellant, it appeared to them that the appellant had received Rs.11,86,998/-towards reimbursement of advertisement charges from their clients for the period from October 2007 to January 2010, on which, apparently, the appellant did not pay Service Tax. It is the further case of the Revenue that the appellant had availed input service credit on services like training, insurance on various office equipment, car hire charges and pest management services, for the above period.
3. Therefore, the Revenue issued a Show Cause Notice dated 20.04.2010 proposing inter alia to demand Service Tax of Rs.1,46,713/-.
4. It appears that the appellant filed a detailed reply dated 24.05.2010 denying any tax liability, but however, in adjudication, the Deputy Commissioner-adjudicating authority vide Order-in-Original No. 88/2010 dated 18.11.2010, rejected the explanation, thereby confirming the demands as proposed in the Show Cause Notice.
5. Aggrieved by the above demand, it appears that the appellant preferred an appeal before the first appellate authority, who vide impugned Order-in-Appeal No. 364/2013 (MST) dated 20.12.2013 having confirmed the demand of Service Tax, but however, recalculating the same at Rs.1,30,574/-, the present appeal has been filed before this forum.
6. Heard Ms. R. Sri Visvapriya, Ld. Advocate for the appellant and Shri Harendra Singh Pal, Ld. Assistant Commissioner.
7. The Ld. Advocate would submit at the outset that the Service Tax demand on the alleged reimbursement of advertisement charges has been settled by this very Chennai Bench in the appellant’s own case for a different period vide Final Order No. 43083 of 2017 dated 04.12.2017 in Service Tax Appeal No. 296 of 2010.
8. Per contra, the Ld. Assistant Commissioner supported the findings of the lower authorities.
9. After hearing the rival contentions, we find that the only issue involved is the taxability of reimbursement of advertisement charges.
10. We have considered the rival contentions and we have gone through the order relied upon by the Ld. Advocate.
11. We find, after hearing both sides, that this Bench in its Final Order dated 04.12.2017 (supra) has, after following the decision of the Hon’ble Madras High Court in the case of Commissioner of Service Tax v. Sangamitra Services Agency [2014 (33) S.T.R. 137 (Mad.)], set aside the demand. The relevant observation of this Bench reads as under: –
“5. The issue is whether the amount of Rs. 3,39,539/-received by the appellant would fall under reimbursable expenses or not. The appellants are engaged in rendering Manpower Recruitment and Supply Agency service and not any Advertisement Agency service. This also brought out from the agreement in para-3(2), which speaks about expenses such as expenses like media, travel and stay costs etc., prior permission has to be taken and these have to be invoiced at cost. Thus it can be seen from the advertisement charges, which was incurred to be a onetime occasion and was only expenses incurred on behalf of the client which are reimbursed on actual basis. We therefore follow the decision in the in the case of Sangamitra Services Agency (supra) and hold that the demand is unsustainable. The impugned order is set aside. The appeal is allowed with consequential relief if any, to the appellants.”
12. In view of the above, we find the assertion of the Ld. Advocate to be true and that the issue is no more res Integra since the same has been decided in the appellant’s own case for a different period by this very Bench. Further, the Revenue has also not made out any case for deviating from the above order.
13. Hence, following the above order, we set aside the impugned order and allow the appeal with consequential benefits, if any, as per law.
(Order pronounced in the open court on 04.08.2023)
*****
(Author can be reached at info@a2ztaxcorp.com)
Author Bio
