No Service Tax on Installation Expenses w/o Evidence of Commission Agent being Reimbursed by Principals: CESTAT [Read Order]
The Tribunal found that there was no material on record to show that the installation-related expenditure booked by the assessee was reimbursed by its principals
The Hyderabad Regional Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) recently held that no service tax demand on installation-related expenditure can be raised to a commission agent in the absence of evidence showing that the agent had been reimbursed by its principals.
M/s Link Well Electronics Pvt. Ltd., an entity based in Telangana acted as an agent for companies such as Ricoh India Ltd. and Motorola India Pvt. Ltd., assisting in sales, order procurement and related activities.Also Read:CENVAT Reversal to be Computed Only on Common Input Services, Not Total Credit: CESTAT Allows Appeal [Read Order]
The proceedings emanated from show cause notices covering the period from 2005 to 2012, wherein the Department alleged the agent’s service tax liability under BusinessAuxiliary Services (BAS) as well as Erection, Commissioning or Installation Services (ECIS).
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During scrutiny of agreements and financial statements, the Department observed that Link Well received various commissions for promoting the business of Ricoh and Motorola, which it classified under BAS.
The Department noticed an additional accounting entry labelled “Installation Expenditure” in the assessee’s profit and loss account and concluded that the amount represented reimbursable expenses received in connection with installation services. As the assessee had not paid service tax on the “Installation Expenditure”, the adjudicating authority confirmed demands for BAS and ECIS, and the Commissioner (Appeals) later upheld them.
B. Venu Gopal appeared for Link Well. While they did not dispute the BAS demand on merits, Link Well contested the levy under ECIS on the ground that the “Installation Expenditure” recorded in its books consisted only of travel and stay expenses of employees, forming part of their accounting practice and was not reimbursed by the principals.
He referred to a statement of the Managing Director dated 04.10.2010, where it was categorically stated that no installation-related reimbursements were ever received. The appellant counsel further emphasised that the Department had produced no evidence beyond the mere presence of an accounting entry to establish that the expenditure related to installation activity or that it had been reimbursed by Ricoh or Motorola.
M. Anukathir Surya appeared for the Revenue and reiterated the findings of the lower authorities.
The Bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) noted that the Department had failed to substantiate its allegation with any material showing that the assessee had received reimbursable amounts for installation. CESTAT further noted that Rule 5 of the Service Tax Valuation Rules, relied upon by the Department to include reimbursable expenses, had been declared ultra vires by the Supreme Court in Union of India vs Intercontinental Consultants & Technocrats Pvt. Ltd. (2018).
In the absence of evidence linking the expenditure to installation services or demonstrating reimbursement, the Tribunal set aside the ECIS demand and associated penalties. However, as the assessee did not contest the BAS demand on merits, the Tribunal upheld the same along with interest and penalty under Section 78.
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