Airfare for Foreign Consultant Not Taxable under Service Tax: CESTAT [Read Order]

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal(CESTAT) ruled that airfare expenses for a foreign consultant, paid by assessee, were not taxable under service tax.

Rane Holdings Limited, appellant-assessee,challenged the service tax demand on consultancy services. The assessee had registered for Service Tax for various services, including ‘Management Consultancy Services,’ and paid the service tax under the Reverse Charge Mechanism for services received from Prof. Y. Washio, a Japanese national.

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The assessee also paid for the service provider’s air tickets from Japan to India and later sought reimbursement from other companies involved in the consultancy. However, an audit found that the air travel expenses should be considered part of the service provider’s consideration, making the assessee liable to pay service tax on these expenses.

As a result, two Show Cause Notices were issued in 2010 and 2011, demanding tax, interest, and penalties. The Original Adjudicating Authorities confirmed the demand and imposed penalties. The Commissioner (Appeals) upheld these orders. Aggrieved by the decisions, the assessee filed an appeal before the tribunal.

The assessee's counsel, stated that the assessee did not reimburse the service provider for air tickets, as incorrectly mentioned in the order. The assessee had booked and paid for the tickets through a travel agent and had already paid the service tax. The air travel costs were not part of the service provider's charges and should not be included in the taxable value.

The counsel cited Rule 7 of the Service Tax (Determination of Value) Rules and relevant tribunal decisions to argue that the taxable value should only include what the service provider charged. He also noted that even if air ticket costs were added, the appellant could claim tax credit, and there was no tax evasion.

The Department's representative argued that the air travel expenses should be included in the taxable value, as travel was necessary for the service.

The tribunal reviewed the case and heard both sides. The issue was whether the air travel expenses for Prof. Y. Washio, the service provider, should be included in the taxable value for service tax.

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The assessee paid service tax on the consultancy services under the reverse charge mechanism but did not include the air travel expenses, arguing that these costs were shared among the service recipients and not paid to the service provider.

The two member bench comprising Ajayan T.V(Judicial Member) and Vasa Seshagiri Rao(Technical Member)referred to Rule 7 of the Service Tax (Determination of Value) Rules, which says the taxable value should be the actual consideration for the service, excluding reimbursed expenses. Since the appellant already paid service tax on the amount to Prof. Washio, the air travel costs were not considered part of the taxable value.

The appellate tribunal also cited previous cases and concluded that reimbursable expenses should not be taxed. Even if the air travel costs were considered part of the service fee, the appellant could claim CENVAT credit, making the matter neutral.

The appeal was allowed.

To Read the full text of the Order CLICK HERE

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