2025 (7) TMI 149 - AT - Service Tax

Short payment of service tax - allowing reimbursable expenses at a standard rate instead of actual expenses and dropping the demand - tax liability of the respondent under consulting engineer service for FY 2011-12 - amount paid under protest when the letter of protest was given after more than two months. Allowing reimbursable expenses at a standard rate instead of actual expenses and dropping the demand - HELD THAT - If a service provider had not paid service tax at all and it emerged during investigation that it had rendered taxable services service tax can be charged only if there is evidence that a taxable service was rendered and the value of the service so rendered is available. If Revenue cannot get hold of each and every invoice but is able to obtain aggregate values in the books of accounts or balance sheets demand can only be raised based on the available figures and the best judgment of the officer. If every tax invoice is insisted upon service tax cannot be confirmed if the invoices were not available. As it is with the tax so is it with the deductions on account of reimbursable expenses. If there is no doubt that reimbursable expenses were incurred and amounts on that account were collected but the exact figures are not available the officer has to use his best judgment. It is evident that the exact figures were not available as otherwise Revenue would have provided the figures and proof - There are no reason to interfere with the best judgment of the Commissioner with respect to the value of the reimbursable expenses incurred by the respondent. For the year 2011-2012 SCNs were issued on the basis of best judgment assessment - HELD THAT - The service tax return would not show any tax as having been paid on reimbursable expenses but would show it as tax paid on a service. The service rendered by the respondent was classified as consulting engineering service and the service tax was paid accordingly. The amounts collected for providing this service was taxable while any reimbursable expenses collected were not in view of Intercontinental Consultants. Therefore the entire amount paid by the respondent as service tax should be reckoned towards the taxable service. There are no error in the Commissioner doing so. Respondent had paid certain amounts during the course of investigation but had given a letter of protest after two months after such payment - HELD THAT - According to the Revenue the Commissioner erred in considering the amounts so paid as deposits and adjusting them towards the confirmed demand. There are no force in this submission of the Revenue. Any amounts paid during investigation do not become service tax by themselves. They need to be appropriated towards confirmed demands in the adjudication order and if any amount paid is more than what is finally confirmed the assessee will be entitled to refund of the amount and vice versa. If no SCN is issued at all after investigation then the assessee can claim refund of the amounts so paid. It is immaterial if the letter of protest was given before or while depositing the amounts or not at all given. The impugned order is correct and proper and calls for no interference - Appeal dismissed.

The core legal questions considered by the Appellate Tribunal (AT) in this matter are:

(a) Whether the Commissioner erred in allowing reimbursable expenses at a standard rate instead of actual expenses and consequently dropping part of the service tax demand;

(b) Whether the Commissioner was correct in accepting the admitted service tax liability under 'consulting engineer service' for the financial year 2011-12 against the service tax demand raised on reimbursable expenses;

(c) Whether the Commissioner erred in considering the service tax demand for FY 2014-15 during discussions related to FY 2015-16;

(d) Whether the Commissioner was justified in accepting amounts paid under protest as deposits despite the letter of protest being submitted after a delay of more than two months.

Issue-wise Detailed Analysis

(a) Allowance of Reimbursable Expenses at Standard Rate vs. Actual Expenses

Relevant Legal Framework and Precedents: The key precedent is the Delhi High Court judgment in Intercontinental Technocrats and Consultants, which held that no service tax is chargeable on reimbursable expenses. This position was upheld by the Supreme Court in a subsequent appeal, thereby establishing that reimbursable expenses are not subject to service tax.

Court's Interpretation and Reasoning: The Tribunal recognized the binding nature of the Intercontinental Consultants ruling, affirming that reimbursable expenses cannot be subjected to service tax. The Revenue's contention that the Commissioner erred by accepting the reimbursable expenses on a standard rate basis without verifying actual expenses was examined critically. The Tribunal noted that the Revenue failed to produce any evidence demonstrating that the actual reimbursable expenses were less than the amount allowed by the Commissioner.

Key Evidence and Findings: The Revenue did not provide documentary proof or audit records to contradict the Commissioner's assessment based on the standard rates claimed by the respondent. Given the absence of such evidence, the Tribunal accepted the Commissioner's best judgment approach.

Application of Law to Facts: Under section 72 of the Finance Act, 1994, the assessing officer is empowered to make a best judgment assessment when exact records are unavailable. The Tribunal emphasized that in cases where exact invoices or detailed records are missing, the best judgment of the Commissioner, based on available aggregate figures, is appropriate and legally sustainable.

Treatment of Competing Arguments: The Revenue's argument that the Commissioner should have ascertained actual expenses was rejected due to lack of evidence. The Tribunal highlighted the practical difficulties in demanding exact invoices and the necessity of relying on best judgment assessments in such circumstances.

Conclusion: The Tribunal upheld the Commissioner's approach of allowing reimbursable expenses at the standard rate claimed by the respondent and dropping the corresponding service tax demand, finding no error or illegality.

(b) Acceptance of Service Tax Paid under 'Consulting Engineer Service' for FY 2011-12 Against Demand on Reimbursable Expenses

Relevant Legal Framework and Precedents: There is no separate taxable service category for reimbursable expenses. The service tax returns (ST-3) classify tax paid under service categories such as 'consulting engineer service'. The legal position is that reimbursable expenses are amounts collected along with consideration for taxable services but are not themselves taxable.

Court's Interpretation and Reasoning: The Tribunal observed that the Commissioner accepted the respondent's contention that the service tax paid on the reimbursable expenses was actually paid under the head of consulting engineer services. This was consistent with the statutory framework and the classification in the service tax returns.

Key Evidence and Findings: The respondent's ST-3 returns showed payment of service tax on consulting engineer services, not on reimbursable expenses separately. The Commissioner's calculation of tax liability reflected this understanding.

Application of Law to Facts: Since reimbursable expenses are not a distinct taxable service, the tax paid on consulting engineer services logically covers the amounts collected, including reimbursable expenses. The Tribunal found no error in the Commissioner's acceptance of this position.

Treatment of Competing Arguments: The Revenue's contention that the tax paid was not correctly matched to the demand was dismissed as misconceived given the nature of reimbursable expenses and the classification of services.

Conclusion: The Tribunal affirmed the Commissioner's acceptance of the service tax paid under consulting engineer services against the demand raised on reimbursable expenses for FY 2011-12.

(c) Consideration of Service Tax Demand for FY 2014-15 in Discussion of FY 2015-16

Relevant Legal Framework and Precedents: The judgment does not elaborate in detail on this issue, suggesting it was not a determinative point for the Tribunal's decision.

Court's Interpretation and Reasoning: The Tribunal did not find merit in the Revenue's submission regarding the consideration of FY 2014-15 demand during FY 2015-16 discussions, implying that such consideration did not prejudice the respondent or affect the correctness of the adjudication.

Conclusion: No interference was warranted on this ground.

(d) Acceptance of Amounts Paid Under Protest Despite Delay in Protest Letter

Relevant Legal Framework and Precedents: The legal principle is that amounts paid during investigation are not automatically service tax liabilities but are treated as deposits. Such amounts are to be appropriated against confirmed demands in the adjudication order. The timing of the protest letter does not affect the status of the payment as a deposit.

Court's Interpretation and Reasoning: The Tribunal rejected the Revenue's argument that the delay in submitting the protest letter invalidated the deposit status of the payments. It was emphasized that the critical factor is the adjudication order's appropriation of such payments, not the timing of the protest letter.

Key Evidence and Findings: The respondent had paid Rs. 1,53,00,000/- during the investigation period, and although the protest letter was submitted after more than two months, the Commissioner treated these amounts as deposits and adjusted them against confirmed demands.

Application of Law to Facts: The Tribunal held that the payments made under protest are to be accounted for in the final adjudication, and the absence or delay of a protest letter does not negate this principle.

Treatment of Competing Arguments: The Revenue's contention was dismissed as lacking legal basis.

Conclusion: The Tribunal upheld the Commissioner's treatment of the amounts paid during investigation as deposits, properly adjusted against the final demand.

Significant Holdings

"As per Intercontinental Consultants reimbursable expenses cannot be charged to service tax and the demands need to be dropped to that extent."

"Section 72 of the Act provides for best judgment assessment by the assessing officer in such cases. The Commissioner adjudicating the SCNs also determined if the self-assessment of tax was correct or otherwise. Therefore, his best judgment based on the available figures needs to be accepted unless there is evidence to the contrary."

"If a service provider had not paid service tax at all and it emerged during investigation that it had rendered taxable services, service tax can be charged only if there is evidence that a taxable service was rendered and the value of the service so rendered is available."

"Any amounts paid during investigation do not become service tax by themselves. They need to be appropriated towards confirmed demands in the adjudication order and if any amount paid is more than what is finally confirmed the assessee will be entitled to refund of the amount and vice versa."

The Tribunal concluded that the impugned order was "correct and proper and calls for no interference," and accordingly dismissed the Revenue's appeal.

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