By TIOL News Service

MUMBAI, DEC 23, 2013: THE facts of the cases are that three SCNs were issued to the appellant for the period from 1.4.2000 to 31.3.2004 demanding service tax on the ground that the appellants have failed to include the value of reimbursable expenses while providing “Advertising Agency Service” to its clients.

The lower authorities confirmed the demand and, therefore, the appellant is before the CESTAT.

It is submitted that prior to 1.07.2001 the appellants were paying the service tax on the assessable value including reimbursable expenses. However, after 1.7.2001, they were not including the reimbursable expenses in the assessable value of service. It is submitted that the issue was settled only by the Larger Bench in the case of Sri Bhagvathy Traders vs. CCE - (2011-TIOL-478-CESTAT-BANG) and prior to that there were divergent views on the issue. Inasmuch as since they were in bonafide belief that the reimbursable expenses are not to be included in the assessable value, the larger period cannot be invoked and, therefore, the demand is not sustainable.

It is further submitted that major portion of the demand is for export of the services and the same was exempted Notification No.6/99-ST dated 09.04.1999& subsequently by Notification 21/2003-ST dated 20.11.2003 and during the intervening period 1.3.2003 to 20.11.2003 in view of Board Circular 56/5/2003 dated 25.04.2003, the services continued to remain exempted as they were exports. Reliance is also placed on the decision in SGS India Pvt. Ltd. - (2011-TIOL-666-CESTAT-MUM). The appellants also claimed the cum tax benefit.

The Revenue representative relied on the LB decision (supra) which is against the appellant and also submitted that during the period 1.3.2003 to 19.11.2003 there was no exemption/Notification and since the applicant had provided taxable services to the foreign service recipient whereas the advertisement was displayed in India, they are liable to pay Service Tax.

The Bench observed that the issue whether the reimbursable expenses are to be included in the assessable value of services is now settled by the Larger Bench of this Tribunal in the case of Sri Bhagvathy Traders (supra) and since there were divergent views prior to this decision, the demand beyond the normal period of limitation is not sustainable. So, the Bench upheld the demand which was within normal period of limitation.

As for the liability for the period 01.03.2003 to 20.11.2003 when there was no exemption notification in respect of services provided to any person and the consideration was received in convertible foreign exchange, the Bench observed that section 93 of the FA, 1994 provides for granting exemption from service tax and the Board Circular cannot be a substitute for the same. Inasmuch as the appellants were liable to service tax for the period 1.3.2003 to 19.11.2003.

The decision cited by the appellant in SGS India Pvt. Ltd.(supra) was also distinguished.

In fine, the CESTAT upheld the demand for the period 01.03.2003 to 19.11.2003 but set aside the penalties by invoking section 80 of the FA, 1994. It was also held that the appellants are entitled to cum-tax benefits.

The appeal was disposed of accordingly.

In passing: Probably this is not the last that we hear of this case!

(See 2013-TIOL-1899-CESTAT-MUM)