Extended Limitation Cannot Be Invoked When all Details Disclosed in Returns: CESTAT Quashes Service Tax Demand on Reimbursed Diesel Costs for DG Set Rentals [Read Order]
Mere non-reporting of reimbursed diesel costs in service tax returns could not be equated with suppression or wilful misstatement with an intent to evade tax, said the tribunal.
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The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), Allahabad, has set aside service tax demands raised in connection with diesel costs reimbursed by their customers for hiring generator sets.
The Tribunal held that reimbursable diesel costs cannot be included in the taxable value of services under “supply of tangible goods,” and further ruled that the invocation of the extended period of limitation was unjustified since all relevant details had been disclosed in statutory returns and income tax records.
The appellants, M/s Jainson Generators and M/s Anju Jain Generator Contractor were engaged in providing DG sets on hire to banks and other clients, who separately reimbursed the diesel expenses required for running the generators. While service tax was duly paid on rental charges, no tax was charged on reimbursed diesel costs, which were billed separately.
The Department, however, treated such reimbursements as part of the value of taxable services under Rule 5 of the Service Tax (Determination of Value) Rules, 2006, and issued show cause notices demanding tax for past years along with penalty.
The Tribunal noted that the Supreme Court in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd.had already held Rule 5 to be ultra vires Section 67 of the Finance Act, 1994. It stated that only with effect from May 14, 2015, after an amendment to Section 67, could reimbursable expenses be included in the taxable value.
On the issue of the extended limitation, the P.K. Choudhary (Judicial member) found that the appellants had filed ST-3 returns within due dates and had reported the entire receipts in their income tax filings. The Department itself had accepted such reimbursements in earlier years.
Mere non-reporting of reimbursed diesel costs in service tax returns could not be equated with suppression or wilful misstatement with an intent to evade tax, said the tribunal.
According to the bench, the extended limitation under Section 73(1) could only be invoked when suppression was deliberate and with intent to evade duty, conditions absent in the present case.
Accordingly, the Tribunal quashed the demands, set aside the penalties, and allowed both appeals.
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