The Kolkata bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) ruled that reimbursements for direct ABP operation costs as per written agreement are exempt from service tax.
The issue to be decided was whether the amount reimbursed by ABP to the Appellant on actual basis towards the direct cost of ABP operations in terms of the written agreement shall be leviable to Service Tax in terms of Section 67 of the Finance Act, 1994 read with Rule 5(1) of the Service tax Determination of Value Rules, 2006.
The Appellant M/s Direxions Marketing Solutions was a service provider. The Show Cause Notice was issued to them on the ground that they have not paid the Service Tax on the entire consideration received from their clients ABP Pvt. Ltd. The demand was raised by way of Show Cause Notice issued on 30/7/2009 for the period July 2004 to March 2007 March 2007 by invoking the extended period provisions. After due process, the Adjudicating Authority confirmed the demand.
Mr. Bikash Gupta, representing Appellant, submitted that based on the incontrovertible fact that the entire amount, based on which the impugned demand was confirmed by the adjudicating authority, was purely in the form of reimbursement of cost of resources deployed for ABP in terms of the Agreement, the aforesaid Supreme Court decision is squarely applies to this case. In view of the aforesaid Supreme Court decision, no Service Tax is payable by the Appellant for the reimbursement of cost of resources deployed for ABP in terms of the agreement and accordingly on this ground alone, the impugned OIO is required to be set aside.
Mr. J. Chattopadhyay, representing the department, submitted that what has been received by the Appellant from ABP is a direct cost incurred by the Appellant. Therefore, this is not in the nature of reimbursement at all. Accordingly, in this case, the case law of Intercontinental Consultant cannot be applied. He justifies the confirmed demand on merits. He further submits that the details obtained by them shows that about 53% of the gross amount charged by the Appellant is claimed by them as reimbursable expenses
The bench also saw force in the submissions made by the Appellant with regard to the confirmed demand for the extended period. Admittedly, the Appellants were registered with the Central Excise Department either at Mumbai or at Kolkata and they have been paying the Service Tax on the commission amount received by them and also filing their ST-3 Returns. All the transactions have been properly recorded in their Books of Account and the values have been derived by the Department from their Balance Sheet, P & L Account and Trial Balance.
Further, the case law of Intercontinental clearly interprets that reimbursements are not liable for the Service Tax payment. In view of these, the Appellant could be holding a bonafide belief that no Service Tax is required to be paid. It is also not the case of the Department that they have collected the Service Tax and not paid the same on such reimbursed amounts.
Accordingly, the two member bench of the tribunal comprising R. Muralidhar (Judicial member) and Rajeev Tandon (Technical member) set aside the confirmed demand for the extended period on account of time bar. Accordingly, CESTAT allowed the appeal both on merits as well as on account of limitation.
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