In a ruling in favour of Coca Cola India, the Chandigarh Bench of Customs, Excise, Service Tax Appellate Tribunal ( CESTAT ) has held that no service tax on reimbursable expenses towards advisory services to group companies is applicable.
The appellant/assessee, M/s Coca Cola India Inc, a branch office of Coca Cola India Inc, Delaware, USA, are engaged in the business of providing advisory services to their group companies namely Coca Cola India Pvt Ltd, Coca Cola Beverages Pvt Ltd and Hindustan Coca Cola Marketing Company Pvt Ltd as per the service agreement.
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In terms of the agreement, the appellant received a consolidated consideration which is actual cost plus 5% service fee; the expenses like conveyance, rent, telephone, repairs, insurance, sponsorship etc incurred in the course of rendering the services were reimbursed to the appellant at actual basis.
The department conducted an audit of the accounts of the appellant for the period 01.04.2001 to 30.03.2005 and it was observed that the appellant had not paid service tax on the expenditure reimbursed to them by the group companies. A show cause notice covering the period 01.04.2003 to 30.04.2006 was issued to the appellant and was confirmed by the impugned order dated 11.01.2012 by invoking extended period.
It was held that reimbursable expenses are considered for providing services and are subjected to be taxed. The Circular dated 07.10.1998 issued on the occasion of budget is only informatory in nature and effective in that year alone. The expenses being incurred and charged only in course of provision of service, hence service tax is payable. As per the order Rule 5 of Service Tax (Determination of Value) Rules, 2005 is categorical in holding that the expenses of reimbursement are to be included.
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The assessee contended that the issue of including reimbursable expenses in the assessable value is no longer res integra. The order is beyond the scope of show cause notice. Whereas the show cause notice seeks ‘inclusion of reimbursable expenses’ in the assessable value for payment of service tax, the impugned order considers the same as ‘consideration’ for the provision of service.
The assessee submitted that the expenses were incurred by the appellant and were reimbursed on actual basis. All the payments were made by the appellant to the third parties. The expenses were incurred on behalf of the service recipients and thus were reimbursed on actual basis. There was no suppression of facts whatsoever with intent to evade payment of duty and therefore, an extended period cannot be invoked.
The department contended that the value of service tax cannot be anything more than or less than consideration paid as quid pro quo for rendering such services and therefore, reimbursable expenses cannot be includable.
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The Supreme Court in the case of UOI vs. Intercontinental Consultants & Techmnocrats Pvt. Ltd. has held that Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assessees.
The two member bench of S. S. Garg (Judicial Member) And P. Anjani Kumar (Technical Member) has observed that in terms of Section 67 of the Finance Act, 1994, service tax is to be levied on the consideration for the services rendered and not for any reimbursement of expenses particularly paid to third parties.
The tribunal held that as long as the expenses reimbursed are not shown to be a consideration towards the provisions of service, the same cannot be included for the purposes of arriving at the taxable value. It was noted that the department has not brought out anything on record to show that the said expenses are indeed a consideration but were shown artificially as expenses.
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Jitendra Motwani appeared on behalf of the appellant and Siddharth Jaiswal appeared on behalf of the respondent.
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