In a significant judgment, the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) in Kolkata ruled that service tax pertaining to reimbursable expenses is not payable by the assessee.
The assessee/appellant in the case is Saila Shipping & Clearing Agency Private Limited. The case arose from a series of audits conducted by the tax authorities on the financial records of the assessee-company, covering the fiscal years from 2007-08 to 2011-12.
During the audit, it was found that there was a discrepancy in the amount of taxable value declared by the assessee- company in their service tax returns (ST-3 forms) and the actual amount received. The tax authorities alleged that this discrepancy resulted in the short payment of service tax amounting to Rs. 4,20,162.
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Additionally, the authorities pointed out several other issues, including the improper utilization of CENVAT credit worth Rs. 68,973 due to the company’s failure to provide necessary documents for verification. Moreover, they highlighted that the assessee-company had provided both taxable and exempt services but had failed to maintain separate accounts, violating CENVAT Credit Rules. This led to an additional demand of Rs. 1,10,701.
The audit also revealed that the assessee had collected Rs. 16.28 crores for services rendered but had not paid service tax on a portion of this amount, claiming it was for reimbursable expenses incurred on behalf of the clients. The Commissioner of Service Tax, Kolkata, issued a show-cause notice and later confirmed the demand for Rs. 4,20,162 along with penalties, though demands on other amounts were dropped.
The assessee company, represented by its legal team, argued that they had actually overpaid their service tax obligations, producing a reconciliation statement to demonstrate that they had paid Rs. 91,32,428 in taxes, more than the required Rs. 86,70,177. They further contested that reimbursable expenses are not subject to service tax, citing a Supreme Court ruling in the case of Union of India vs Intercontinental Consultants & Technocrats Private Limited, where it was held that such expenses do not fall under the purview of service tax.
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Upon reviewing both sides’ arguments, CESTAT bench of Mr Ashok Jindal and Mr K Anpazahakan found merit in the assessee-company’s claims. It was established that the assessee had paid an excess of Rs. 4,62,251 in service tax, which nullified the alleged shortfall of Rs. 4,20,162. The tribunal also upheld the Supreme Court’s precedent, ruling that the reimbursable expenses collected by the assessee-company were not subject to service tax. In result, the appeal by the assessee was allowed.
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