Service Tax Chargeable on Reimbursement of Insurance charges, Relocation charges and School Fee under ‘Corporate Cost Allocations’: CESTAT [Read Order]

The Ahmedabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that the service tax was chargeable on the reimbursement of insurance charges, Relocation charges, and school fees which was considered under the head of ‘corporate cost allocation’. 

Linde Engineering India Private Limited, the appellant assessee was registered with the jurisdictional service tax department, having a centralized service tax registration, and engaged in the business of providing taxable output services under the category of consulting engineer services, erection, commissioning, and installation service, and construction services other than residential complex, including commercial/ industrial buildings or civil structures and works contract services, etc. to customers located within /outside India and also engaged in the provision of services to its clients which are spread in various countries. 

The assessee appealed against the order passed by the adjudicating authority for confirming the service tax demand on various services rendered by the assessee such as Professional fee/engineering services, Corporate cost allocation, Consultancy fees, Bank charges, and others amounting to Rs. 4,94,88,067/- along with interest under Section 75 and penalty under Section 78(1) and 77(2) of the Finance Act,1994. 

Venkateshwaran and Nikita Jain, the counsels for the assessee contended that the expenditure relating to the purchase of foreign exchange, school fees for American Embassy School, training and development on foreign locations, travel arrangements for foreign expatriates and employee benefits are not liable to service tax. 

Also submitted that the payments had been made according to the employment contract between the employees of the assessee and the assessee and the payments had been made purely under employer-employee relationship. Hence, the question of levy of service tax does not arise to reimbursement of insurance fees and relocation charges. 

Tara Prakash, the counsel for the department relied on the decisions made by the lower authorities and contended that the service tax was leviable on the charges in which the assessee was rendered and the demand raised by the department was as per the law and liable to be sustained. 

The Bench observed that under the heading ‘Corporate Cost allocations’ the relationship between the seconded employees and the assessee was not covered under the exclusion clause contained in the definition of 'Service' under Section 65B(44)(b) of the Finance Act as the employee-employer relationship. 

Accordingly, the Reimbursement Of Insurance Charges, Reimbursement Of Relocation Charges Of Employees, School Fees, And Reimbursement Of Salary Plus Other Reimbursements as discussed above were chargeable to service tax. 

The two-member bench comprising Ramesh Nair (Judicial) and C L Mahar (Technical) upheld the service tax demand under the head of the corporate coat allocation. 

To Read the full text of the Order CLICK HERE

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