B. Ravichandran ORDER
B. Ravichandran, Member (T)
1. These appeals are against the common impugned order dated 28.02.2014 of Commissioner of Service Tax, New Delhi. Both Revenue as well as the assesses preferred appeal. The appellant-assesses are engaged in providing management or business consultant service liable to tax under Section 65(105)(r) of the Finance Act, 1994 read with Section 65(65). Proceedings were initiated against the appellant-assesses by way of issue of SCN dated 17.10.2012. The demand is for recovery of service tax under the category of Management or Business Consultant Service for the period 2007-08 to 2011-12. A total demand of Rs. 1,15,05,871/- was made in the notice. An amount of Rs. 2,710/- was also sought to be recovered as in-eligible Cenvat credit. The appellant-assesses contested the demand. The case was adjudicated resulting in the impugned order. The original authority held that the appellants are liable to pay service tax of Rs. 21,32,201/-. He dropped a demand for Rs. 93,73,670/-, which is attributable towards reimbursable expenditure incurred by appellant-assesses while providing service. He also ordered recovery of Rs. 2,710/- towards irregular Cenvat credit availed by the appellant-assesses. Penalties were imposed under Sections 77 & 78of Finance Act, 1994.
2. The Ld. Counsel appearing for the appellant submitted that a demand of Rs. 6,76,382/- has been confirmed on the ground that the appellant-assesses provided management or business consultant service to M/s. Nippon Koei Co. Ltd., Japan. The Ld. Counsel submitted that the service is received by the foreign based client and consideration is received by the appellant-assesses inconvertible foreign exchange. It is a case of export of service, not liable to Service Tax. He relied on various decided cases in support of his contention.
3. On the second issue regarding liability of service tax in respect of certain expenses shown in foreign exchange in their balance-sheet, it is contended that the Revenue could not clearly establish that the services received in lieu of such expenditure in foreign exchange are, in fact, covered by tax entry of management or business consultant service. The demand is made based on the details available in appellants accounts regarding expenditure in foreign exchange. Such presumptive demand cannot be legally sustained.
4. Without prejudice to the same, the Ld. Counsel submitted that tax liability, if any, paid by the appellant-assesses on such services on reverse charge basis shall be eligible as a credit and in such situation, there can be no allegation of intention to evade tax. As such, the demand cannot be made for extended period and no penalty can be imposed in such situation.
5. Regarding an amount of Rs. 2,710/- confirmed towards irregular Cenvat credit, it is submitted that the said amount has already reversed and the same has not been property recognized by the lower authority.
6. On the appeal filed by the Revenue, the Ld. Counsel for the appellant-assesses submitted that the original authority correctly applied the ratio of the decision of Hon'ble Delhi High Court in M/s. Intercontinental Consultants & Technocrats (P) Ltd., MANU/DE/6376/2012 : 2012 TIOL 966 HC Delhi-ST to hold that the taxable value cannot include reimbursable expenditure incurred on behalf of client.
7. The Ld. AR contested the grounds of appeal by the appellant-assessee. He submitted that though the appellants provided service as per agreement with M/s. Nippon Koei Co. Limited, the ultimate use of service is for special assistance in project formation in Gujarat forestry sector. As such, the services are in India only. There is no export of service in such case.
8. Regarding the liability of the appellant-assesses for service tax, on reverse charge basis in respect of expenditure shown in foreign exchange, the Ld. AR submitted that the appellant-assesses could not establish any other reason for such expenditure in foreign exchange. The appellant-assesses is involved in providing management or business consultant service and have also received such services in furtherance of their business.
9. We have heard both sides and perused appeal record. On the first issue, we note that the appellant-assesses entered into an agreement and in pursuance of such agreement, they have to collect various details regarding policies, plans and priorities relating to Gujarat forestry sector. They are also required to collect documents, data and information relating to laws, orders, guidelines of such sector. Based on all the collected data and information, they were required to review and analyze the current status of social development in Gujarat to identify constraints and potential of GFDB. It is clear that though the data information and other analysis is collected and done by the appellant-assesses in India, the same is in terms of an agreement with a foreign based company. The foreign based client paid consideration inconvertible foreign exchange. The nature of service being such, the same is for consumption and benefit of the foreign client. Service tax being consumption/destination based tax, we find that the services rendered by the appellant-assesses are, in fact, to be considered as export. We are in agreement with the appellant assesses that the ratio laid-down by the Tribunal in:
i) M/s. Gap International Sourcing (India) Pvt. Ltd.- 2014-TIOL-465-CESTAT-DEL
ii) M/s. Microsoft Corporation (I)(P) Ltd.-MANU/CE/0438/2014 : 2014 (36) STR 766 (Tri. Del.)
iii) M/s. Paul Merchants (P) Ltd.- MANU/CE/0501/2012 : 2013 (29) STR 257 (Tri.-Del.)
are squarely applicable to the present case.
10. We note that the said ratio has been upheld by the Hon'ble Delhi High Court in M/s. Verizon Communication India (P) Ltd.- MANU/DE/2736/2017 : 2017-TIOL-1863-HC-Del.-ST. As such, we find that the appellant-assesses are not liable to service tax on this service.
11. Regarding second issue, we note that the service tax liability is confirmed against the appellant without actually examining the scope of the transaction/agreement with the foreign based companies to whom the appellant paid foreign exchange. We perused the impugned order in this regard. Para 34 of the impugned order examined the defence of the appellant with reference to lack of clarity in the demand. It is clear that there is no categorical finding as to how the expenditure incurred in foreign exchange can be considered as a payment towards specific category of taxable service and thereafter can be subjected to tax at the hands of the appellant on reverse charge basis. We find considerable force in appellant-assessee's plea with reference to presumptive nature of the demand for service tax attributable to expenditure in foreign currency. In fact, the nature of services received by the appellant-assesses with supporting evidence has not been analyzed at all. In such situation, the finding recorded by the impugned order suffers from serious legal infirmity. Even otherwise, we note that the demand for extended period cannot be sustained in the facts and circumstances of the present case. Admittedly, the concept of reverse charge was a new legal principle for service tax. The same was subjected to numerous litigations and interpretation. The legal position got firmed up only after the decision of Hon'ble Bombay High Court in Indian National Shipping Owners Association-MANU/MH/1312/2008 : 2009 (13) STR 235 Bombay, which was affirmed by Hon'ble Supreme Court- SC 2010 (17) STR J57. The legal position was confirmed and clarified by Board vide instruction dated 26.09.2011. Further, tax, if any, paid on reverse charge basis would have been eligible to the appellant-assesses as a credit for discharging further service tax liability. In such scenario, we find no justification to invoke the extended period for demand.
12. With reference to appeal filed by the Revenue, we note the same is against dropping of demand by the original authority, attributable to reimbursable expenditure. We note that the Revenue contested the finding of the original authority on the ground that the Board's clarification is only with reference to out-of-pocket expenditure, supported by documentary evidences. In terms of Rule 5 of Valuation Rules, reimbursable cost of expenditure is to be treated as a consideration for taxable services. Regarding decision of the Hon'ble Delhi High Court in M/s. Inter-continental (supra), Revenue contended that an appeal has been filed before the Apex Court. On perusal of the grounds of appeal, we find no sustainable material in the same. Admittedly, the reimbursable expenditure incurred by the appellant is as per pre-arrangement and reimbursed by the client on actual basis. The analysis of the original authority on this issue is based on the decision of Delhi High Court and facts of the case. The non-includability of reimbursable expenditure in the taxable value has been upheld in large number of decisions by this Tribunal also. As such, we find no merit in the present appeal by the Revenue.
13. In view of above discussion and analysis, we allow the appeal of the appellant-assesses and dismiss the appeal of the Revenue.
(Pronounced in Court on 08.12.2017)
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