CESTAT Kolkata Sets Aside ₹42.78 Lakh Demand Against Belle Vue Clinic Over Expense Reimbursements
The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 22 September set aside the Rs. 42.78 lakh service tax demand against Belle Vue Clinic for the period October 2010 to March 2015.
A Bench comprising Judicial Member R. Muralidhar and Technical Member K. Anpazhakan held that reimbursements towards proportionate common expenses could not be included in the taxable value of services before 14 May 2015, when the law was amended to specifically cover reimbursable expenditure. It observed:
“There is nothing to indicate that the appellant has realized the Service Tax from MPBN and not paid the same to the Department. Further, the appellant is a Service Tax paying assessee and has been filing their Returns. Therefore, we hold that the Revenue has not made any case of suppression with an intent to evade Service Tax payment against the appellant.”
The dispute concerned an arrangement between Belle Vue Clinic and M.P. Birla Netralaya (MPBN) for running the Priyamvada Birla Aravind Eye Hospital in a portion of the clinic's premises.
Under a Memorandum dated 1 June 2006, Belle Vue Clinic allotted the area to MPBN without charging rent. MPBN was instead required to reimburse its proportionate share of common expenses, including electricity, municipal taxes, maintenance charges and other outgoings.
Following an audit, the Department treated these reimbursements as consideration for renting of immovable property and issued a show cause notice demanding Rs. 42,78,828 in service tax, along with interest and penalty.
The Tribunal noted that the Memorandum expressly provided that Belle Vue Clinic would not charge rent from MPBN. It further noted that the amounts received were calculated according to specified proportions of the common expenses.
It relied on the Supreme Court's judgment in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., which held that Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 could not expand the scope of Section 67 of the Finance Act, 1994 by including reimbursable expenses in the taxable value.
The Bench noted that Section 67 was amended with effect from 14 May 2015 to specifically include reimbursable expenditure or costs within the definition of consideration. The Supreme Court had held that the amendment was substantive and operated prospectively. Since the demand related to the period October 2010 to March 2015, the Tribunal held that the amended provision could not be applied retrospectively.
Further, it found that Belle Vue Clinic had disclosed the sharing of expenses and that there was no evidence that it had recovered any amount beyond the specified proportion. It held that the clinic could have entertained a bona fide belief that such reimbursements were not liable to service tax.
It also observed that the Revenue had failed to establish suppression of facts with an intent to evade service tax. It therefore set aside the demand invoking the extended period of limitation.
Accordingly, the CESTAT allowed the appeal with consequential relief, if any, in accordance with law.
For Appellant: FCA Pulak Saha and FCA Shivam Arora
For Respondent: Authorized Representative S. Dutta