The Supreme Court has dismissed the appeal of revenue against Boeing India Defense Private Limited, reaffirming the ruling in Union of India & ANR. Vs M/s Intercontinental Consultants and Technocrats Ltd. that reimbursable expenses are not includible in gross value for levy of service tax, in the situation of salary reimbursements for secondment of employees.
The revenue pursued the present appeal against Boeing India, in challenge to the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) which was issued in concurrence to the ruling in Intercontinental Consultants and Technocrats Ltd.
The two Customs, Excise and Service Tax Appellate Tribunal (CESTAT) appeals were filed to assail the Order-inOriginal dated 26.11.2020 passed by the Commissioner. The appellant (Boeing) has filed the Service Tax Appeal, challenging the demand of Rs.46,67,212/- confirmed along with interest and equal penalty. The department has filed the Service Tax Appeal challenging the dropping of the service tax demand of Rs.1,68,14,783/- by the adjudicating authority.
The appellant (Boeing) in the CESTAT case, had entered into an agreement with its holding company, namely The Boeing Company for providing services on a cost plus mark-up basis. In order to provide service effectively and efficiently, the Appellant employed employees of TBC on secondment basis. The Appellant entered into a salary reimbursement agreement with TBC to facilitate secondment of employees from TBC to it and payment of remuneration to the seconded employee in their home country. Pursuant to service tax audit by the department, the impugned show cause notice was issued demanding service tax on the expenditure incurred towards hotel stay, school tuition fees for the disputed period considering the same as part of the consideration paid for import of manpower services from April 2015 to June 2017.
The counsel for Boeing, CA K. Sivarajan Vikash Agarwal had submitted that the extended period of limitation under section 73(1)/ Penalty under section 78 cannot be invoked in the instant case, as the none of the ingredients for invoking extended period of limitation or for imposing penalty under Section 78 are present in the instant case.
He also submitted that the Adjudicating Authority had failed to appreciate that as per Section 67(4)(c) of the Act ‘gross amount charged’ will include any form of payment, including credit note, debit note, book adjustment to any account by the person liable to pay service tax. The service tax paid by the appellant to the vendors providing the said services is a different transaction which is not related to the service being received by the appellant from the parent company. He added that section 67(1) (i) of the Act specifically provides for the inclusion of such value of non-monetary consideration in taxable value.
It was also stated before the CESTAT Bench that, “the expenses incurred in India, by way of reimbursement of school tuition fee (on actuals) to such seconded employee would not form part of the value of ‘taxable service for the purpose of payment of service tax under reverse charge mechanism. It is a settled principle of law that expenses incurred by the service recipient, or any goods or services provided by the service recipient to the service provider is not liable to be included in the value of taxable service for the purpose of payment of service tax.”
The CESTAT bench had observed that, “We note that this issue with regard to non-payment of service tax on the reimbursable expenses travelled upto Hon’ble Apex Court wherein it got settled by the decision in the case of Union of India and Anr. v. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd., the Apex Court has held as per Section 67 (un-amended prior to 1st May, 2006) or after its amendment with effect from 1st May, 2006, the only possible interpretation of the said Section 67 is that for the valuation of taxable services for charging service tax, the gross amount charged for providing such taxable services only has to be taken into consideration.”
It was thus held by the tribunal that, “Any other amount which is not for providing such taxable service cannot be the part of the said value. It was clarified that the value of service tax cannot be anything more or less than consideration paid as quid pro quo for rendering such services.”
Accordingly, it was held that Section 67 of Finance Act, 1994 does not allow inclusion of reimbursable expenses in valuation of service rules.
Notably, in the present case, the counsel appearing for the appellant-department, before the Supreme Court, very fairly submitted that the issues which arise in these appeals are covered by the judgment of this Court in Union of India & Anr. V/s.Intercontinental Consultants and Technocrats Private Limited (2018) and, therefore, an appropriate order may be passed in these appeals.
The Supreme Court Bench of Justices B V Nagarathna and Ujjal Bhuyan thus held that, “In the circumstances, the Civil Appeals are dismissed”, dismissing the appeal of the revenue in favour of Boeing India Defense Private Limited.
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