Nature of service should make no difference to the taxability of reimbursements: CESTAT

The appellant is engaged in providing Event Management Services which are undisputedly taxable under Section 65 (105) (zu) of the Finance Act, 1994, and the appellant is registered with the Department and has been paying service tax. Service tax is levied on taxable services rendered by the assessee. The valuation of taxable services is done as per Section 67 of the Finance Act, 1994.

The office of the Directorate General of Audit audited the records of the appellant and found that the appellant had short-paid the tax. Hence, show cause notices were issued to the appellant proposing to recover the short-paid service tax aggregating Rs. 1,19,21,936 and also proposing to impose penalties under Sections 76, 77(2), and 78 of the Finance Act, 1994. Aggrieved, the present appeal was filed.

The Commissioner confirmed the service tax and imposed the penalty. Aggrieved the assessee filed this appeal. The tribunal observed that Service Tax Rules, 2006 amended Section 67. Rule 5 of these Rules stipulated inclusion in or exclusion of the value of certain expenditures and costs sub-rule (2) of Rule 5 specifically provided that expenditure of cost incurred by the service provider as a pure agent of the recipient service shall be excluded from the value of taxable service if certain conditions are met. This rule 5 was held to be ultra vires of Section 67. The tribunal thus held that the nature of service should make no difference to the taxability of reimbursements when Rule 5 under which the tax was demanded itself has been ultra vires by Supreme Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd.

Therefore, the demands confirmed against the appellant did not survive. The penalty imposed upon the appellant was set aside by the Tribunal. The appeal was allowed and the impugned order was set aside with consequential relief to the appellant.