CESTAT: No Service Tax Can be Levied by Customs Dept on Travel Expenses Sans India

The Customs, Excises, and Service Taxes Appellate Tribunal (CESTAT), Bangalore Bench. Has held that no service tax can be levied by customs authorities on “travel expenses incurred by the employees of a particular company” as the services have never been received in India.

The appellant, M/s NCR Corporation India Private Limited has been issued a Show cause Notice by customs authorities. The customs authorities alleged non-payment of service tax on various grounds and were seeking to recover the same from the appellant along with interest and penalty. The Show Cause Notice proposed to mandate the payment of the tax on the basis that after review of the Balance Sheet of the Company, it was found that the Company had met certain expenses in foreign exchange, categorized as travel and others in the balance sheet, that is related to the “Professional Services” received under the ISA.

The tax authorities mentioned that as per the proviso of Section 67 of the Finance Act, 1994 read along with Rule 5 of the Service Tax (Determination of Value) Rules, 2006, all the expenses that have been done in relation to the proviso of main services have to be included within the domain of the gross value charged for the provision of aforesaid service, and so are subject to Service Tax. Consequently, the aforesaid expenses that have been incurred have to be included in the “supra”, and chargeable to service tax as per the Reverse Charge Mechanism, As per the category of Business Support Services.

In all, The Authorities demanded service tax worth Rs15,20,96,837/- on account of tax on travel services, along with the applicable interest. The matter raised was whether the Appellant “M/s NCR Corporation India Private Limited” is liable to pay service tax on reimbursement of overseas travel expenses paid to its own employees and whether the Appellant is responsible to pay a service charge.

The appellant has also submitted before the tribunal “specimen of expenditure reimbursement claims” of one of its employees in addition to the appointment letter issued to the said employee in order to authenticate that foreign expenditure booked under the category of travel, is not meant for compensating any overseas group entity or any employee of the overseas group entity. The appellant has further submitted that the “impugned Show Cause Notice” that demanded the service tax under the Business Support Service category does not bring on record the fact that how the claimed services are within the purview of the Business Support Service category.

The Coram of P.Anjani Kumar and S.S.Garg held that travel expenses that have been incurred by the employees of the appellant have not been met in connection to Integrated Services Agreement. These services have never been received/obtained in India and consequently cannot be taxed in the hands of the appellant under Section 66A of the Finance Act, 1994.

Yash Bapna (Ex-employee)

I hold a degree in law, a diploma in mass communication, and a degree in management. Though I am a lawyer by profession, but writing has always been one of the things that I'm passionate about.

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