Service Tax not leviable on reimbursement charges

[CA Bimal Jain]

The CESTAT, Chennai, in M/S. ABC CONSULTANTS PRIVATE LIMITED VERSUS COMMISSIONER OF SERVICE TAX - 2023 (8) TMI 736 - CESTAT CHENNAI  set aside the demand of service tax on reimbursed amount and held that the assessee only paying advertisement charges on behalf of clients which was later reimbursed to him on actual basis thus the demand of service tax is unsustainable.

FACTS:

M/s ABC Consultants Pvt. Ltd. (“the Appellant”) is rendering ‘manpower recruitment or supply agency’ service.

Revenue Department (“the Respondent”) initiated the verification of accounts and found that the Appellant had received INR 11,86,998/- towards reimbursement of advertisement charges from the clients for the period of October 2007 to January 2010, on which apparently, service tax was not paid.

A Show Cause Notice dated April 20, 2010 (“the SCN”) was issued proposing the demand of service tax of INR 1,46,713/- on advertisement reimbursement charges. The Appellant filed the reply denying the demand of service tax. However, the Adjudicating Authority vide an order dated November 18, 2010 (“the OIO”) confirming the demand of service tax proposed in the SCN.

Aggrieved by the OIO, the Appellant filed an appeal before the Appellate Authority challenging the OIO who vide an order dated December 20, 2013 (“the OIA”) confirmed the demand of service tax and recalculated the demand of service tax at INR 1,30,574/-.

Aggrieved by the OIA, the Appellant filed an appeal before the CESTAT, Chennai challenging the OIO.

Issue:

Whether reimbursable charges attract service tax liability?

Held:

The CESTAT, Chennai in M/S. ABC CONSULTANTS PRIVATE LIMITED VERSUS COMMISSIONER OF SERVICE TAX - 2023 (8) TMI 736 - CESTAT CHENNAI  held as under:

• Relied upon the judgement of COMMISSIONER OF SERVICE TAX VERSUS M/S. SANGAMITRA SERVICES AGENCY - 2013 (7) TMI 862 - MADRAS HIGH COURT wherein the Hon’ble Madras High Court held that the agreement between the assessee and client speaks about reimbursable expenses viz., media, travel and stay costs etc., and these have to be invoiced at cost. The reimbursable charges were incurred for one-time occasion and was only expenses incurred on behalf of the client which were reimbursed on actual basis therefore, the demand of service tax was unsustainable.
• Held that, the Appellant was only paying advertisement charges on behalf of clients which was later reimbursed to him on actual basis thus, the demand of service tax was unsustainable.  

(Author can be reached at info@a2ztaxcorp.com)