Value of Service Tax cannot be Anything More or Less than Consideration Paid for Rendering Service: CESTAT sets aside Interest and Penalty [Read Order]

The New Delhi bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the value of service tax cannot be anything more or less than the consideration paid for rendering service and set aside the Interest and penalty.

M/s. Boeing India Defense Pvt. Ltd, the appellant challenged the demand of Rs.46,67,212/- confirmed along with interest and equal penalty. On the other hand, the department challenged the dropping of the service tax demand of Rs.1,68,14,783/- by the adjudicating authority. 

The Appellant entered into an agreement with its holding company, namely ‘The Boeing Company’  for providing services on a cost-plus markup basis.  To provide service effectively and efficiently, the Appellant employed employees of TBC on a secondment basis. The Appellant entered into a salary reimbursement agreement with TBC to facilitate the secondment of employees from TBC to it and payment of remuneration to the seconded employee in their home country. 

The department issued the impugned show cause notice demanding service tax on the expenditure incurred towards a hotel stay, and school tuition fees for the disputed period considering the same as part of the consideration paid for the import of manpower services from April 2015 to June 2017. 

It was submitted that as per the clauses of the agreement and employment contract, the seconded employees were on the payroll of the Appellant and the Appellant had paid the salary and other perquisites after the due deduction of income tax, employee provident fund contribution, as per applicable Indian laws to the seconded employees.

The Appellant also issued Form 16 to the seconded employees. For administrative convenience, the said salary was deposited by the parent company in the bank account of the seconded employees in the home country, based on details provided by the Appellant and thereafter a debit note was issued on the Appellant.

Further stated that in terms of the employment letter issued to the secondees, the Appellant was arranging facilities like providing accommodation, hotel stay, car and education (school tuition fees) of dependent children of the seconded employees.

The expenses for the same were incurred by the Appellant directly, except for the school tuition fee where payment was made by the seconded employees and then reimbursement was claimed. He added that an employer-employee relationship came into existence between the Appellant and the seconded employees and such an arrangement will not fall under the definition of 'service' under Section 65B(44) of the Finance Act.

Further, the provision of service by an employee to the employer in the course of or about his employment has been excluded from the definition of service under Section 65B(44) and hence does not attract service tax.

It was viewed that in the case of the Union of India and Anr. v. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd, the Apex Court has held that “as per Section 67 (un-amended before 1st May 2006) or after its amendment with effect from  1st May 2006, the only possible interpretation of the said Section 67 is that for the valuation of taxable services for charging service tax, the gross amount charged for providing such taxable services only has to be taken into consideration. Any other amount which is not for providing such taxable service cannot be part of the said value. “

A two-member bench comprising Dr Rachna Gupta, (Judicial) and Ms Hemambika R Priya, (Technical) observed that the value of service tax cannot be anything more or less than the consideration paid as quid pro quo for rendering such services. Further held that Section 67 of the Finance Act, 1994 does not allow the inclusion of reimbursable expenses in the valuation of service rules. 

To Read the full text of the Order CLICK HERE

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