2025 (6) TMI 1726 - AT - Service Tax

Time limitation - Liability of appellant to pay service tax - Man Power Supply Service - levy of service tax on the reimbursable expenses received by the appellant - extension of benefit under Section 80 for waiver of penalty imposed under Section 77 or 78 of FA - HELD THAT - While considering the grounds for extending applicability of Section 80 Commissioner (Appeals) has made certain observations which show that the appellants had reasonable belief and that there was no intention to evade payment of service tax and that there was no deliberate cause for non-payment of service tax. It is also a fact that the Department had come in appeal against the said order of the Commissioner (Appeals) however on the grounds of monetary limits they had withdrawn their appeal. Therefore this observation of the Commissioner (Appeals) stands today as far as the factual matrix is concerned. Therefore in the given factual matrix as observed by the Commissioner (Appeals) at para 18 it is found that there is no sufficient ground for invoking extended period. The major part of demand has already been covered by the period of limitation and the remaining part the appellants are not objecting the demand of service tax within the normal period. It is also made clear that the issue on merit not decided. It is however made clear that whatever amount of the service tax had already been paid along with interest by the appellant they will not be claiming any refund thereof as they have not pressed for the same. However demand to the extent of normal period is upheld. Conclusion - The extended period of limitation could not be invoked in this case. Demand to the extent of normal period is upheld. Penalties also set aside. Appeal allowed partly.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the appellant was liable to pay service tax on the manpower supply service rendered from 2008-09 onwards.

- Whether the amounts received by the appellant as reimbursable expenses (specifically wages and provident fund) could be excluded from the gross amount charged for the purpose of service tax under Section 67 of the Finance Act, 1994.

- Whether the extended period of limitation for demanding service tax could be invoked in this case.

- Whether penalties under Sections 77 and 78 of the Finance Act, 1994, could be waived under Section 80 given the appellant's bona fide belief and absence of intent to evade tax.

2. ISSUE-WISE DETAILED ANALYSIS

Liability to pay service tax on manpower supply service

The appellant was engaged in providing manpower supply services and initially did not discharge service tax or obtain registration. The Department contended that service tax was payable and registration was mandatory. The appellant subsequently obtained registration and began paying service tax.

The Commissioner (Appeals) held that the appellant was liable to pay service tax on the services provided from 2008-09 onwards. This position was not contested before the Tribunal, and it was accepted as an admitted fact that the appellant was providing taxable service and was required to pay service tax.

Reimbursable expenses and gross amount charged

The appellant argued, relying on the Supreme Court decision in Union of India vs. M/s Intercontinental Consultants and Technocrats Pvt Ltd., that service tax cannot be demanded on reimbursable expenses. Specifically, the appellant contended that amounts billed towards wages and provident fund were reimbursable and hence should be excluded from the taxable gross amount under Section 67 of the Finance Act, 1994.

The Department and Commissioner (Appeals) examined the nature of these amounts. The appellant raised two separate invoices: one for wages and provident fund at Rs. 140 per man-hour and another for commission at Rs. 14 per man-hour, as per the service recipient's directions.

The Commissioner (Appeals), after considering Section 5(2) of the Finance Act and the factual matrix, held that these amounts were not in the nature of reimbursable expenses and therefore could not be excluded from the gross amount charged for service tax computation. The Tribunal noted this finding and did not disturb the Commissioner (Appeals) on this point.

Applicability of extended period of limitation

The question of limitation was taken up before deciding the substantive tax liability. The appellant relied on the Commissioner (Appeals)'s observations in paragraph 18 of the impugned order, which recognized a bona fide belief on the part of the appellant that service tax was not payable on the services rendered, and found no intention to evade tax.

The Commissioner (Appeals) recorded that the appellant had paid a substantial amount of Rs. 4,87,517/- before issuance of the show cause notice and, considering the appellant's educational status and circumstances, held that there was reasonable cause for non-payment and that penalties under Sections 77 and 78 should be waived under Section 80.

The Department argued that the Commissioner (Appeals) did not explicitly hold that the extended period could not be invoked. However, the Tribunal observed that the factual findings of bona fide belief and absence of intent to evade tax effectively negated the grounds for invoking the extended period.

Moreover, the Department had initially appealed against the Commissioner (Appeals) order but withdrew the appeal on monetary grounds, leaving the findings on bona fide belief intact.

Accordingly, the Tribunal held that the extended period of limitation could not be invoked in this case. The demand was upheld only to the extent covered by the normal period of limitation, and the appellant did not contest this portion of the demand.

Waiver of penalties under Sections 77 and 78

The Commissioner (Appeals) relied on the appellant's bona fide belief and absence of willful evasion to waive penalties under Sections 77 and 78 by invoking Section 80 of the Finance Act. The Tribunal concurred with this approach, noting that the appellant's educational background and prompt partial payment of service tax before the show cause notice supported the finding of reasonable cause.

Thus, penalties were set aside, consistent with the principle that penalty should not be imposed where there is no deliberate attempt to evade tax.

3. SIGNIFICANT HOLDINGS

"I find merit in TKR's contention that he was of the belief that the service rendered by him was not liable to service tax and that he was ignorant of the service tax provisions as he studied up to 10th class only. Further, as he already paid substantial amount i.e. Rs. 4,87,517/- even before issue of show cause notice and considering the facts and status of TKR, I am of the view that there was no intention to evade payment of service tax and that there was reasonable cause for non-payment of service tax and it is a fit case for extending the benefit under the provisions of Section 80 for waiver of penalties imposed in the impugned order under Section 77 and 78 of FA. Accordingly, I set aside the penalties imposed in the impugned order."

This reasoning establishes that bona fide belief and absence of intent to evade tax constitute sufficient grounds for waiver of penalties under Section 80.

The Tribunal's conclusion that the extended period of limitation could not be invoked in the presence of such bona fide belief and partial payment is a significant principle reaffirming the protective scope of limitation provisions in tax demand cases.

The Tribunal upheld the demand for service tax only within the normal period of limitation and declined to entertain claims for refund or contest demands beyond that period, emphasizing the importance of limitation in revenue recovery.