Custom, Excise & Service Tax Tribunal
M/S. Dream Loanz vs Cce, Coimbatore on 23 May, 2017
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
ST/59 & 51/2007
(Arising out of Order-in-Appeal No.4/2007-ST dated 17.1.2007 passed by the Commissioner of Central Excise (Appeals), Coimbatore)
M/s. Dream Loanz
Commissioner of Central Excise, Coimbatore Appellants
Vs.
CCE, Coimbatore
M/s. Dream Loanz Respondents
Appearance Shri Mohammed Rahim, Advocate for the Assessee Shri K.P. Muralidharan, AC (AR) for the Department CORAM Honble Ms. Sulekha Beevi C.S., Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing / Decision: 23.05.2017 Final Order Nos. 40770-40771 / 2017 Per Ms. Sulekha Beevi C.S. The issue in both the appeals being connected are heard together and disposed by this common order. The parties herein are referred to as assessees and department for sake of convenience.
2. Brief facts of the case are that the assessees are engaged in rendering service such as promotion / marketing of various loans given by M/s. ABN Amro Bank. The department was of the view that the services rendered by the assessees would fall within the ambit of Business Auxiliary Service. The officers of the department visited the premises of the assessee on 2.9.2004 and gathered evidence. It came to the notice of the department that assessees were suppressing the value of taxable services and had not declared the gross value of taxable services received by them. The assessees received retainer ship fee as well as out-of-pocket reimbursable expenses and they had discharge service tax only on the retainer ship fees. Thereafter, show cause notice dated 13.4.2006 was issued proposing to recover service tax to the tune of Rs.24,31,949/- along with interest and to impose penalties. After due process of law, the original authority confirmed the service tax demand along with interest and imposed penalties under section 76 and 78 of the Finance Act, 1994. The assessees filed appeal before Commissioner (Appeals) and vide impugned order, the Commissioner (Appeals) upheld the demand along with interest, however, set aside the penalty imposed under section 76. Being aggrieved by the confirmation of demand, interest as well as penalty imposed under section 78 of the Finance Act, the assessees are now before the Tribunal. The department has filed Appeal No.ST/51/2007 against the impugned order setting aside the penalty imposed under section 76 of the Finance Act.
3. On behalf of the assessee, learned counsel Shri Mohammed Rahim reiterated the grounds of appeal and in particular made the following submissions:-
3.1 The assessee had filed declaration on 28.10.2004 declaring the amount received as retainer fee and also discharged the service tax liability under Extraordinary Taxpayers Friendly Registration Scheme. In the said declaration, the assessee had also mentioned about the reimbursable out-of-pocket expenses received by them. He contended that the demand is raised presently only on reimbursable out-of-pocket expenses received by the assessee.
3.2 That this amount cannot be included in the gross value of taxable services and that the said issue is covered by the judgment in the case of Bhaven Desai Vs. Commissioner of Service Tax 2016 (43) STR 235 (Tri. Mumbai), wherein similar service provider to the very same bank namely ABN Amro Bank was given relief by setting aside the demand on reimbursable out-of-pocket expenses.
3.3 The learned counsel has also relied upon the judgment of the Honble High Court of Delhi rendered in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. Vs. Union of India 2013 (29) STR 9 (Del.).
3.4 The learned counsel has also relied upon the decision of the Tribunal in the case of Malabar Management Services Pvt. Ltd. Vs. Commissioner of Service Tax, Chennai 2008 (9) STR 483 (Tri. Chennai).
3.5 He also argued that the show cause notice is time-barred for the reason that the assessee was under bonafide belief that the reimbursable out-of-pocket expenses need not be included in the gross value of taxable service and the allegation that the assessee has suppressed the fact is without basis for the reason that in the declaration filed on 28.10.2004, the assessee has mentioned receiving reimbursable out-of-pocket expenses.
4. Against this, the learned AR for Department Shri K.P. Muralidharan reiterated the findings in the impugned order. Adverting to the show cause notice as well as the adjudication order, he submitted that the assessee did not declare the reimbursable out-of-pocket expenses in the returns and the same has come to light only on the intervention of the Department after search conducted in the premises of the assessee. The assessee, therefore, are guilty of suppression of facts and the show cause notice issued invoking extended period of limitation is right and proper.
4.1 On merits, learned AR submitted that the reimbursable out-of-pocket expenses is also to be included in the gross value of taxable services and the judgment in the case of Intercontinental Consultants & Technocrats (supra) relied upon by the learned counsel for the assessee has been appealed by the department before the Honble Supreme Court and the same has been admitted as reported in 2014 (35) STR J99 (SC).
4.2 The learned AR also relied upon the decision in the case of Commissioner of Central Excise Vs. Sanfin 2009 (13) STR 551 (Tri. Kol.) wherein the Tribunal has relied upon the decision in the case of Malabar Management Services (supra). The decision of the Tribunal in the case of Malabar Management Service, which is in favuor of the assessees, has also been appealed by the Department before the Honble Supreme Court reported as 2010 (19) STR J16 (SC).
5. We have heard the submissions made by both sides. On perusal of the judgment cited before us, we understand that the issue whether reimbursable out-of-pocket expenses has to be included in the gross value of taxable services is now pending before the Honble Supreme Court. However, as per the judgment in the case of Intercontinental Consultants & Technocrats (supra), the Honble High Court of Delhi has held in favour of the assessee thereby observing that the same need not be included in the gross value of taxable services. The relevant portion of the judgment is reproduced below:-
18.?Section 66 levies service tax at a particular rate on the value of taxable services. Section 67(1) makes the provisions of the section subject to the provisions of Chapter V, which includes Section 66. This is a clear mandate that the value of taxable services for charging service tax has to be in consonance with Section 66 which levies a tax only on the taxable service and nothing else. There is thus inbuilt mechanism to ensure that only the taxable service shall be evaluated under the provisions of 67. Clause (i) of sub-section (1) of Section 67 provides that the value of the taxable service shall be the gross amount charged by the service provider for such service. Reading Section 66 and Section 67(1)(i) together and harmoniously, it seems clear to us that in the valuation of the taxable service, nothing more and nothing less than the consideration paid as quid pro quo for the service can be brought to charge. Sub-section (4) of Section 67 which enables the determination of the value of the taxable service in such manner as may be prescribed is expressly made subject to the provisions of sub-section (1). The thread which runs through Sections 66, 67 and Section 94, which empowers the Central Government to make rules for carrying out the provisions of Chapter V of the Act is manifest, in the sense that only the service actually provided by the service provider can be valued and assessed to service tax. We are, therefore, undoubtedly of the opinion that Rule 5(1) of the Rules runs counter and is repugnant to Sections 66 and 67 of the Act and to that extent it is ultra vires. It purports to tax not what is due from the service provider under the charging Section, but it seeks to extract something more from him by including in the valuation of the taxable service the other expenditure and costs which are incurred by the service provider in the course of providing taxable service. What is brought to charge under the relevant Sections is only the consideration for the taxable service. By including the expenditure and costs, Rule 5(1) goes far beyond the charging provisions and cannot be upheld. It is no answer to say that under sub-section (4) of Section 94 of the Act, every rule framed by the Central Government shall be laid before each House of Parliament and that the House has the power to modify the rule. As pointed out by the Supreme Court in Hukam Chand v. Union of India, AIR 1972 SC 2427 :-
The fact that the rules framed under the Act have to be laid before each House of Parliament would not confer validity on a rule if it is made not in conformity with Section 40 of the Act. Thus Section 94(4) does not add any greater force to the Rules than what they ordinarily have as species of subordinate legislation.
6. We also take note of the fact that the coordinated Bench of the Tribunal in the case of Bhaven Desai (supra) has also analyzed and discussed the very same issue with respect to another service provider to the very same service recipient / ABN Amro Bank and held that reimbursable out-of-pocket expenses need not be included in the gross value of taxable services. The relevant portion of the order is extracted herein below:-
11.?M/s. Baven Desai has claimed that the remuneration received by them for rendering taxable service, in accordance with the agreement, is a per mensem amount of Rs. 40,000 and that tax has been discharged on this amount. It is also noticed that the other inflows into the designated bank account maintained with the client has been claimed to be reimbursement of expenses incurred by M/s. Baven Desai on behalf of the client. Revenue went to the extent of calling for vouchers to examine this claim but, having gone through this process, as admitted in the show cause notice, chose to ignore this claim while confirming demand of tax on the entire amount received in the bank; and, that too, despite the assessee paying tax on an amount of ` 52,96,730/- after accepting inability to produce evidence that these were expended on behalf of client.
12.?Though Section 67 of Finance Act, 1994 mandates tax payment on gross amount charged by service provider, tax cannot be determined on the total receipts owing to the qualification for such service rendered by him therein. Therefore, the routine application of tax rate on the entire payment received from a recipient of service is not envisaged or authorized by law. Tax collection is sanctified only to the extent of identifying the value of the service rendered. The claim of an assessee that a specific amount is the value of the service rendered is questionable only when Revenue can establish that there are elements in the receipts which require inclusion in the charge for the service rendered. Such an exercise is not perceptible in the proceedings before the lower authorities.
13.?M/s. Baven Desai entered into agreement with their client which, inter alia, provides for reimbursement of certain expenses. No effort appears to have been taken to ascertain if these expenses are attributable to services rendered and if the services to which these can be attributed are taxable. The chargeability of certain amounts received being attributable to a particular taxable service cannot be presumed to confer authority to tax other amounts received from the same entity for services unknown. That would not be a tax on services but a tax on receipts which is not the legislative intent or objective of taxing services.
14.?To ascertain the quid pro quo for the consideration, facts and circumstances of the transaction must be comprehended. The client. M/s. ABN Amro Bank, offers financial products for a customer base spread across the country. The provenance of such products should visibly be linked to the financial institution; that is, and has been, the peculiarity of the banking sector since it first came into being. M/s. Baven Desai, notwithstanding its credibility within its circle, cannot pretend to provide institutional credibility to its client in relation to the financial products of the latter. While M/s. Baven Desai may undertake to popularize the products amongst the populace, the potential customer will look for the symbols of the client as the sole reassurance in relation to the offerings. Further, the industry in which the client, M/s. ABN Amro Bank, operates is subject to rigorous regulation in the number of branches that it can operate. An existing service provider may, additionally, be required to operate a front office of the client to reinforce the credibility of the financial products. These may be mandates of the client for which the client may have to make a separate payment - whether these are for actuals or on lump sum is a matter of commercial agreement. To the extent that compliance with these mandates are liable to be classified only within services that are as yet not taxable, it would be contrary to legislative sanction to determine tax liability on such receipts. The confirmation of demand, and approval thereof, by the lower authorities, thus, exceed limits envisaged by the legislature. We notice that the bulk of the expenses have been incurred on salaries, telephones, office space and advertisements, all of which may be considered to be essential to bringing the banking institution to the doorstep of the customer and is, thereby, inextricably enmeshed with the financial product offered by the bank. The costs claimed to be reimbursable are, therefore, not attributable to the business auxiliary service rendered by the assessee but to the cost of the product itself. Not surprisingly, the bank reimburses these expenses. Therefore, these fall outside the scope of inclusion within the meaning of gross amount charged in Section 67 of Finance Act, 1994 in the context of the identified taxable service.
15.?The assessees claim of reimbursable expenses having been evidenced except for ` 52,96,730/- and the tax having been paid on the unevidenced portion of receipts, further demand of tax envisaged in the show cause notice fails to survive. It would appear that the adjudicating authority was itself not unambiguously certain about the taxability and its scope; the assessee cannot be placed on a higher pedestal of more exacting standards of comprehension and compliance. Invoking of Section 73(4) of Finance Act, 1994 is, therefore, not warranted. The first appellate authority has dropped the penalty under Section 76 of Finance Act, 1994. There is no justification for having continued with the adjudication after the tax liability had been discharged.
7. The judgment in the case of Malabar Management (supra) as well as Intercontinental Technocrats (supra) is also pending decision before the Honble Supreme Court and the same, to our understanding, has not been stayed by the Honble Supreme Court.
8. In such circumstances, following judicial discipline, we are of the view that the judgment in the case of Intercontinental Technocrats (supra) as well as Bevan Desai (supra) and the Malabar Management (supra) would squarely apply to the issue on hand. Following the same, we hold that the appellants are not liable to pay service tax on the reimbursable out-of-pocket expenses.
9. Learned counsel for assessee has also argued on the ground of limitation. As we have already held the issue in favour of the assessee on merit, we do not find it necessary to deal with the limitation aspect.
10. In the result, the impugned order is set aside and the appeal of the assessee No. ST/59/2007 is allowed with consequential reliefs, if any and the departments appeal No. ST/51/2007 is dismissed.
(Dictated and pronounced in open court)
(MADHU MOHAN DAMODHAR) (SULEKHA BEEVI C.S.)
Member (Technical) Member (Judicial)
Rex
9
ST/59 & 51/2007