Introduction: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in Chennai recently adjudicated a case that revolved around whether reimbursable expenses should attract service tax. In its decision on the case of Paper and Allied Conversions vs Commissioner of GST & Central Excise, the tribunal ruled that service tax cannot be imposed on reimbursable expenses. This article provides an in-depth examination of the case.
Background of the Case: Paper and Allied Conversions had undertaken job work which, according to the Department, fell under the category of ‘Business Auxiliary Service.’ Therefore, they were supposed to pay service tax on the reimbursable expenses and job charges they received. The Department found that they did not do so and issued a show cause notice, followed by a demand, which was upheld by the Commissioner (Appeals).
Argument by Paper and Allied Conversions: Represented by Counsel Ms. Manne Veera Niveditha, the appellant referred to the Hon’ble Apex Court’s decision in the case of Union of India Vs Intercontinental Consultants and Technocrats Pvt. Ltd. The appellant argued that, as per this ruling, the demand for service tax on reimbursable expenses could not sustain.
Revenue’s Stance: Ld. A.R Sri Harendra Singh Pal appeared for the Revenue and supported the demand for service tax on reimbursable expenses. He argued in favor of upholding the impugned order.
Legal Precedents and Tribunal’s Decision: The tribunal considered previous rulings, particularly that of the Hon’ble Apex Court, which held that reimbursable expenses should not be subjected to service tax. It also noted a similar decision in the case of Broekman Logistics (India) Pvt. Ltd. Following these precedents, the tribunal ruled that the demand for service tax on reimbursable expenses was not legal and therefore had to be set aside.
Implications of the Ruling: The decision has far-reaching implications for businesses and individuals who may have been incorrectly charged service tax on reimbursable expenses. It sets a precedent for similar cases and provides legal support for the argument that reimbursable expenses should not attract service tax.
Conclusion: The CESTAT Chennai’s ruling in the case of Paper and Allied Conversions vs Commissioner of GST & Central Excise clarifies that service tax should not be levied on reimbursable expenses. The tribunal drew upon legal precedents to arrive at its decision, ultimately siding with the appellant. This landmark judgment sets a significant precedent for businesses and tax practitioners, potentially influencing how such cases will be handled in the future.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief facts are that the appellants undertook job work manufacture which attract service tax under the category of ‘Business Auxiliary Service’. The appellant received consideration in the nature of reimbursable expenses and job charges. The Department noticed that the appellant did not discharge service tax on reimbursable charges. Show cause notice was issued proposing to demand service tax on the reimbursable expenses received by the appellant. After due process of law, the original authority confirmed the demand along with interest and imposed equal penalty under Section 78 of the Finance Act, 1994. On appeal, the Commissioner (Appeals) upheld the same. Hence this appeal.
2. Ld. Counsel Ms. Manne Veera Niveditha appeared for the appellant and submitted that the period involved is from 2006-07 to 2009-10 and the demand is on reimbursable expenses which cannot sustain as per the decision of the Hon’ble Apex Court in the case of Union of India Vs Intercontinental Consultants and Technocrats Pvt. Ltd. – 2018 (3) TMI 357-SC. The Tribunal has followed the said decision in the case of Broekman Logistics (India) Pvt. Ltd. Vs CGST & Central Excise, Chennai reported in 2023 (8) TMI 705-CESTAT CHENNAI.
3. Ld. A.R Sri Harendra Singh Pal appeared for the Revenue and supported the findings in the impugned order.
4. Heard both sides.
5. The issue that arises for consideration in this appeal is whether the demand of service tax on reimbursable expenses is legal and proper. The Hon’ble Supreme Court in the case of UOI Vs Intercontinental Consultants and Technocrats Pvt. Ltd. (supra) has held that the demand of service tax on reimbursable expenses cannot sustain. The Tribunal in the decision of Broekman Logistics (India) Pvt. Ltd. (supra) has set aside the demand applying the said decision of the Hon’ble Apex Court. After appreciating the facts and following the above decisions, we are of the considered view that the demand cannot sustain and requires to be set aside which we hereby do. Appeal is allowed with consequential relief, if any.
(Pronounced in court on 24.08.2023)