2026-VIL-894-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Reimbursable Expenditure – Appellant received legal and professional services for trademark registration/renewal from foreign service providers and made payments in foreign currency, but excluded reimbursable amounts from the taxable value - Whether service tax under RCM can be levied on reimbursable expenditure and costs incurred by the service provider for legal and professional services received from places outside India in respect of trademark registration and renewal, for the period prior to May 2015 – HELD – The reimbursable expenditure can be included in the value of taxable services only after the amendment in May 2015. Prior to May 2015, the decision of the Delhi High Court applies, which has been affirmed by the Supreme Court, that Rule 5(1) of the Service Tax (Determination of Value) Rules 2006 is repugnant to Sections 66 and 67 of the Finance Act, 1994 - The Section 67 mandates that only the consideration for the taxable service itself can be evaluated and charged to service tax, and nothing more and nothing less. By including reimbursable expenditure and costs, the Rule goes beyond the charging provisions. Since the period in dispute is prior to May 2015, service tax on the reimbursable amount has wrongly been confirmed - The issue stands decided in favour of the appellant to the extent of setting aside the confirmation of short-paid service tax on reimbursable amounts – The appeal is partly allowed - Proportionate CENVAT Credit Denial for Common Input Services - Whether the appellant is eligible for CENVAT credit on common input services used in both taxable output services (franchise service) and exempted output services (trading activity), without maintaining separate accounts or reversing proportionate credit – HELD - Although the appellant maintained separate records under Rule 6 of CENVAT Credit Rules 2004, it took credit of entire service tax paid on the common input service under reverse charge mechanism without following the provisions of Rule 6(3). In terms of Rule 2(e), trading is an exempt service, and Rule 6(1) explicitly provides that CENVAT credit shall not be allowed on input services used for provision of exempted services. The composite credit cannot be granted for activities subject to different tax regimes. The appellant, being conscious of its trading activities and its liability to service tax, deliberately availed full CENVAT credit without proportionate reversal, demonstrating suppression of material facts with intent to evade tax liabilities - The reversal of proportionate CENVAT credit is upheld, and the issue stands decided in favour of the revenue/department - Invocation of Extended Period of Limitation and Penalty - Whether the extended period of limitation is invokable and whether penalties imposed are sustainable when a service provider with knowledge of both taxable and exempted activities suppresses material facts regarding the exempted activity – HELD - The appellant was well aware of its trading activities and the fact that CENVAT credit proportionate to the exempted non-taxable activity should not have been availed. The deliberate failure to include amounts earned from trading business in returns while availing full CENVAT credit on input services used for both activities constitutes suppression of material facts with an intent to evade tax liabilities. This conscious omission and selective reporting of activities demonstrates a deliberate attempt to circumvent tax obligations, thereby justifying invocation of extended period and imposition of penalties - The issue stands decided in favour of the revenue/department, with both the extended period invocation and penalties being upheld.
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