In a recent case, the Kolkata Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that the reimbursements received by the assessee cannot be considered as ‘consideration’ towards any taxable service.
The assessee/appellant, Assam Gas Company Limited, is a joint venture with Oil India Limited and Num Aligarh Refinery Ltd. The assessee receives actual reimbursement for the cost of such individuals as a lead JV partner. The department claimed service tax from the assessee because it viewed the reimbursable charges as “consideration” for providing the taxable service of “supply of manpower.”
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The assessee received a show-cause notice. The Commissioner affirmed the service tax demand. The assessee, who was upset with the Commissioner’s decision, appealed it to the Central Excise & Service Tax Commissioner, who affirmed the Commissioner’s ruling. Before the Tribunal, the assessee has contested the Central Excise & Service Tax Commissioner’s ruling.
According to section 67 of the Finance Act of 1994, the assessee argued that such reimbursed expenses did not qualify as “consideration.” The service tax claim on reimbursement is unsustainable because the reimbursement was received on an actual basis and the money obtained was not used to provide any services. However, the Department argued that the assessee was liable for service tax because they had been providing a labor supply service.
As the Lead Partner with a 51 percent stake, the assessee’s services are for themselves and no other company, according to the two-member bench of Ashok Jindal (President) and K. Anpazhakan (Technical). Therefore, the transaction does not involve a relationship between a service provider and a service recipient. According to the Tribunal, the assessee’s reimbursements cannot be regarded as “consideration” for any taxable services.
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“The personnel engaged are the employees of the assessee company and the assessee is paying all salaries etc. to such employees,” the Tribunal said in granting the appeal. The JV only reimburses the actual cost of these employees’ salaries. Therefore, according to rule 2(g) of the Service Tax Rules, the entire agreement between the assessee and the JV does not constitute a taxable service of manpower supply service.
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