The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Hyderabad Bench has quashed the entire service tax demand on reimbursable expenses collected from clients post-May 1, 2006.
For the period 10.9.2004 to 1.5.2006, the appellant, M/s KFin Technologies Private Limited paid service tax under the head “Business Auxiliary Services” under protest. However, it did not pay any service tax on the reimbursable expenses, which it received from its clients.
The officers of the Director-General of Central Excise Intelligence initiated an investigation against the appellant and came to the conclusion that it was liable to pay service tax under the head of Business Auxiliary Services for the period 10.09.2004 to 30.04.2006, including on all reimbursable expenses. They also concluded that the appellant was liable to pay service tax under ‘share transfer agency’ service and ‘registrar to issue’ services for the period from 01 May 2006 including on all reimbursable expenses. The appellant had, during the investigation, clarified by letter dated 08.05.2008 that it had charged service tax on reimbursable expenses, except postage expenses from December 2006 and on all reimbursable expenses including the postage from February 2007.
The CFO of the appellant sent a letter submitting that it had issued debit notes whereby the service tax was charged from the clients on all reimbursable expenses on an actual basis and paid the same to the Department. It was also mentioned the service tax on reimbursable expenses for the period prior to 1 May 2006 was not paid as the demand itself under the head of Business Auxiliary Services was not sustainable.
The coram headed by President Justice Dilip Gupta and Technical Member, N.V. Subba Rao held that the entire demand of service tax on reimbursable expenses collected from clients for the period post 1.5.2006 cannot sustain and needs to be set aside.
“However, to the extent, the appellant has collected any amount representing service tax on such expenses and interest thereon from clients, the same needs to be deposited with the Government in terms of Section 73A of the Finance Act,” the Tribunal said.
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