CESTAT Holds Reimbursed Diesel Expenses on Actuals Non-Taxable Under Service Tax, Reduces Penalty to 25% [Read Order]

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in its recent ruling held that the reimbursed diesel expenses cannot be included in the assessable value for service tax while partly restricting the penalty imposed on a delayed payment.

The appellant, TICS Projects Consultancy Pvt Ltd, is engaged in the provision of Consulting Engineering Services and had not discharged its applicable tax for the period of 1 April 2009 to 31 March 2010.

The Central Excise Division vide letters requested the appellant to supply copies of balance sheets, ledger accounts etc. and to deposit the applicable service tax with interest. Subsequently, the appellants deposited ₹44,17,569 along with interest.

Thereafter, a Show Cause Notice was issued demanding service tax of ₹46,36,744 and proposing penalties. The original authority confirmed the demand and imposed an equal penalty under section 78 and a penalty of Rupees 200 per day under section 77 for failure to file returns

Upon appeal, the same was upheld by the Commissioner (Appeals).

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The appellant submitted there were some financial difficulties during the relevant period and senior officers of the company who were in charge of the affairs of the company resigned and therefore, there was a delay in the payment of service tax.

It was further submitted that service tax liability of ₹ 2,19,175 was fastened on the appellants mistakenly on account of the reimbursable expenditure on diesel that was used by the appellants in the gensets used for the maintenance of the towers.

Referring to the agreement governing the services, the appellant also contended that it is clear from the agreement that the expenses incurred on the diesel consumed shall be reimbursed to the appellants on actual basis.

In support of the arguments, the appellant relied on the supreme court's decision in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd. (2018)

The Department submitted it is not the case the appellants paid service tax on their own but only after continuous correspondence and summons. It further argued that the appellants did not file returns but collected service tax from customers and did not deposit the same and resignation of officers cannot mitigate the offence committed.

The bench comprising S. S. Garg (Member Judicial) and P. Anjani Kumar (Member Technical) found from the agreement that no advance for diesel or consumables was to be paid to the service provider. Bills for the same would be reimbursed on actual basis within 72 hours subject to verification and approval by the head of the Network O&M Department. Therefore, the cost of the same could not be included in the assessable value for payment of service tax.

In view of the facts the tribunal partly allowed the appeal, restricting the penalty under Section 78 to 25% of the amount specified in the order. The bench noted the appellants had already deposited duty and interest along with 25% of the penalty as per the earlier Miscellaneous Order.

Accordingly, the appeal was partly allowed.

The appellant was represented by Joy Kumar, while the Department was represented by Shivam Syal.

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