THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 18.03.2013
+ W.P.(C) 1784/2013
SERCON INDIA PRIVATE LIMITED
THROUGH MOHAN GOEL ... Petitioner
versus
COMMISSIONER (ADJUDICATION),
SERVICE TAX ... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Nageshwar Rao with Ms Rajeshwari K. G., Mr Raghuram
Srinivasan and Ms Sayaree Basu Mallik
For the Respondent : Mr Rahul Kaushik
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V.EASWAR
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. This writ petition is directed against the order dated 05.02.2013,
whereby the Customs, Excise and Service Tax Appellate Tribunal
(CESTAT) has granted partial relief to the petitioner on its application
under Section 35F of the Central Excise Act, 1944 read with Section 83
of the Finance Act, 1994 with regard to the amount of pre-deposit to be
made by the petitioner.
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2. As per the order-in-original, which is the subject matter of the
appeal before CESTAT, a demand of service tax of approximately ` 3.57
crores has been raised against the petitioner. A penalty of ` 4 crores has
also been imposed on the petitioner. As against this, the Tribunal has
directed that the petitioner should deposit a sum of ` 1 crore in three
instalments, namely, ` 40 lacs by 20.02.2013, ` 30 lacs by 20.03.2013 and
` 30 lacs by 10.04.2013. The petitioner has already deposited the first
instalment of ` 40 lacs. The petitioner is before us seeking waiver of
deposit of the balance amount of ` 60 lacs.
3. It is the case of the petitioner that the respondents have added a
figure of approximately ` 37.55 crores and have levied service tax on that
amount to the extent of ` 3.57 crores. It is the case of the petitioner that
the figure of ` 37.55 crores is ex facie wrong inasmuch as the petitioner
has only received a sum of ` 14.22 crores by way of reimbursement for
expenses incurred by it. It is, if at all, only the sum of ` 14.22 crores
which could be the subject matter of taxation. If the approximate average
rate of tax is taken to be 10%, then the entire tax liability, if at all, would
be only to the extent of ` 1.4 crores. Therefore, according to the learned
counsel for the petitioner, even if the stand of the revenue is accepted that
WP(C) 1784/2013 Page 2 of 7
the reimbursed expenditure can be the subject matter of service tax, only
an amount of ` 1.4 crores would be the resulting tax. However, the
learned counsel for the petitioner submitted that the issue of charging
service tax on reimbursable expenditure has been decided against the
revenue in the case of Intercontinental Consultants & Technocrats Pvt.
Ltd v. Union of India: 2013 (29) STR 9 (Del). Therefore, according to
the learned counsel for the petitioner, even that issue stands settled and as
a consequence, no amount of service tax would be due from the petitioner
in respect of the relevant period, i.e., 01.10.2002 to 31.03.2007.
4. There is also the issue of invocation of the extended period of
limitation inasmuch as there has been, according to the petitioner, no
wilful suppression or concealment on the part of the petitioner. Therefore,
in any event, the show cause notice ought to have been issued within the
period of one year and it is only the demand for the period of one year
before the date of issuance of the show cause notice that could be raised,
if at all. He submitted that if the period of one year is taken, then the
entire demand would be reduced to approximately ` 7 lacs, as against
which the petitioner has already deposited a sum of ` 40 lacs.
WP(C) 1784/2013 Page 3 of 7
5. The learned counsel for the respondents, however, submitted that
the demand raised under the order-in-original specifically indicates that
the expenditure to the extent of ` 37.55 crores was reimbursed and,
therefore, on that basis the demand of ` 3.57 crores has been worked out.
As against that, the Tribunal has already granted substantial relief by
restricting the pre-deposit amount to ` 1 crore and has also granted the
petitioner the benefit of instalments. Therefore, according to the learned
counsel for the respondents, the petitioner has been adequately protected
and substantial relief has been given to the petitioner and this Court ought
not to interfere with the impugned order passed by the Tribunal.
6. Having examined the matter at some length, we find that, prima
facie, the issue of levying and charging service tax on reimbursable
expenditure has been settled by the decision of this Court in
Intercontinental Consultants & Technocrats Pvt. Ltd (supra).
Therefore, prima facie, the amount of ` 14.22 crores, which has been
actually received by the petitioner from its clients towards reimbursement
of expenses, could not be the subject matter of service tax. Anyhow,
even if we assume that the expenditure, which has been reimbursed to the
petitioner could be the subject matter of levy of service tax, that amount
WP(C) 1784/2013 Page 4 of 7
would have to be restricted, prima facie, to the sum of ` 14.22 crores and
not to the figure of ` 37.55 crores which has been taken by the revenue.
This is so because we do not find any material which would indicate that
the petitioner received anything in excess of ` 14.22 crores by way of
reimbursement from its clients. The figure of ` 37.55 crores includes the
direct expenditure incurred by the petitioner for which no reimbursement
was claimed nor given. That can never be added on to the figure of
professional fees which has been charged for by the petitioner and paid
for by the clients and on which service tax has already been levied and
collected.
7. As per the financial statements of the petitioner, total revenue, on
account of transactions between 01.10.2002 and 31.03.2007, came to
approximately ` 57.58 crores. Out of this, the billing for professional
service was a figure of approximately ` 33 crores. The expenditure for
which the reimbursement was claimed and billed by the petitioner was to
an extent of approximately ` 14.58 crores (though the actual amount
received as reimbursement was approximately `. 14.22 crores). The
balance figure of approximately ` 10 crores was stated to be `contra
entries'. These contra entries, according to the learned counsel for the
WP(C) 1784/2013 Page 5 of 7
petitioner, merely inflated the figure of receipts, but in reality, the actual
receipts did not increase by ` 10 crores inasmuch as there were contra
entries indicating direct costs of the same amount of ` 10 crores.
8. Thus, if the figure of ` 37.55 crores, which has been taken by the
revenue, is added to the figure of ` 33.00 crores, which has been billed
and received by the petitioner for professional services, the resulting
amount would be approximately ` 70 crores. This would mean that the
petitioner actually received a sum of ` 70 crores as revenue from its
clients. But, according to the learned counsel for the petitioner, it is
nobody's case that the petitioner actually received the said sum of ` 70
crores. Therefore, in whichever way we look at it, we find that the
petitioner has been able to make out a very good prima facie case that no
additional tax is payable by it in respect of the service rendered by it.
However, since the petitioner has already paid a sum of ` 40 lacs,
following the directions of the Tribunal, we are not inclined to interfere
with that part of the order. Insofar as the balance ` 60 lacs is concerned,
we feel that it would not be necessary for the petitioner to deposit the
same by way of pre-deposit so as to have the petitioner's appeal heard by
the Tribunal.
WP(C) 1784/2013 Page 6 of 7
9. Consequently, we allow this writ petition by directing that the pre-
deposit of ` 40 lacs be regarded as sufficient compliance of the provisions
of Section 35F of the Central Excise Act, 1944 read with Section 83 of
the Finance Act, 1994 for hearing the petitioner's appeal which is
pending before the Tribunal. The petitioner shall not be required to
deposit any further amount till the disposal of the appeal. We also make
it clear that our views indicated above are only prima facie and should
not be taken into account by the Tribunal while hearing the appeal on
merits.
BADAR DURREZ AHMED, J
R.V.EASWAR, J
MARCH 18, 2013
SR
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