2018 (2) TMI 945 - AT - Service Tax

Tribunal sets aside penalties for not including additional charges in taxable value

The Tribunal allowed the appeal, setting aside the order confirming a substantial amount and penalties against the appellants for not including freight ... Valuation - includibility - freight charges and equipment rental charges etc. - The department was of the view that as per Rule 5(1) of Service Tax (Determination of Value) Rules 2006, any expenditure or cost which are incurred by the service provider in the course of providing taxable services are to be treated as consideration and has to be included in the value of taxable services for levy of service tax - sub-rule 1 of Rule 5 of Service Tax (Determination of Value) Rules 2006 Held that: - The applicability of Rule 5 (1) was considered by the Hon’ble High Court of Delhi in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. [2012 (12) TMI 150 - DELHI HIGH COURT]. The Hon’ble High Court held that the inclusion of costs and expenditures in the gross taxable value by making provision in the Rules is repugnant to Section 66 and 77 of the Finance Act and to that extent is ultra vires. Demand do not sustain - appeal allowed - decided in favor of appellant. Issues:- Failure to include freight charges and equipment rental charges in the taxable value for service tax liability under Survey and Exploration of Mineral, Oil or Gas service.- Interpretation of Rule 5(1) of Service Tax (Determination of Value) Rules 2006.- Applicability of the decision in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. vs. UOI 2013 (29) STR 9 (Delhi) on the present case.Analysis:Issue 1: Failure to include freight charges and equipment rental chargesThe appellants, engaged in the business of prospecting and exploration of petroleum products, were audited for not including freight charges and equipment rental charges in their taxable value for service tax liability under Survey and Exploration of Mineral, Oil or Gas service. The department issued a Show Cause Notice alleging non-inclusion of these charges, leading to the confirmation of a substantial amount along with penalties by the original authority. The appellants contended that the charges were not required to be included as they were incurred for providing the taxable service. The department argued that these charges were essential components of the service and should have been included in the taxable value.Issue 2: Interpretation of Rule 5(1) of Service Tax RulesThe primary contention revolved around Rule 5(1) of the Service Tax (Determination of Value) Rules 2006, which mandates the inclusion of all expenditure or costs incurred by the service provider in providing taxable services in the value for charging service tax. The appellants relied on the decision of the Hon'ble High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd., which held Rule 5(1) ultra vires as it went beyond the charging provisions of the Act by including additional costs. The Tribunal also cited the case of Dream Loanz Vs. CCE, Coimbatore, following the same rationale to conclude that the demand based on Rule 5(1) could not be sustained.Issue 3: Applicability of previous judicial decisionsThe Tribunal, in line with the decisions in the aforementioned cases, set aside the impugned order and allowed the appeal, providing consequential relief to the appellants. The judgment emphasized that Rule 5(1) of the Service Tax Rules was not in consonance with the charging provisions of the Act and, therefore, could not be upheld to extract additional charges beyond the consideration for the taxable service.In conclusion, the Tribunal's decision in this case highlights the importance of aligning the valuation of taxable services with the provisions of the Act and ensuring that only the consideration paid for the service is subject to taxation, as per the relevant legal framework and judicial precedents.