2019 (1) TMI 513 - AT - Service Tax

Tax liability based on contracted amount only, not reimbursable expenses. Additional consideration taxable if proven. Evidence crucial for pricing.

ITC Limited (Agri Business Division) Versus Commissioner of Customs, Central Excise & Service Tax Nagpur

The Tribunal held that tax liability should only be on the contracted amount discharged by the appellant, excluding reimbursable expenses, as per ... Valuation - Business Auxiliary services - inclusion of amounts paid to the appellant by the other party to the contract in assessable value - Held that:- Hon’ble Supreme Court in re Intercontinental Consultants & Technocrats Pvt Ltd, [2018 (3) TMI 357 - SUPREME COURT OF INDIA] after examining the provisions of Service Tax (Determination of Value of Taxable Services) Rules, 2006 and section 67 of Finance Act, 1994 as amended from time to time, it has been held that, till the incorporation of the explanation in section 67 of Finance Act, 1994 with effect from 14th May 2015, sub-rule (1), of rule 5 of Rules supra, inserted with effect from 1st June 2007, is ultra vires of the Act. Consequently, the legislative intent to tax was held to be limited to the consideration for the service and the test of leviability for the taxable service would have to be overcome for bearing fruit. The obvious conclusion, therefore, is that the consideration agreed upon as recompense for a particular service is taxable. Any other receipt has to be evidenced as additional consideration for the said service to be subject to tax - the demand of tax under the head of 'business auxiliary service' should be restricted to such amount as was being discharged by the appellant on the contracted amount. Manpower recruitment or supply service - pure agent services - section 67 Finance Act, 1994 - Held that:- Absence of consideration is not the same as unascertainable consideration and the Rules cannot be invoked in the present instance. Hence, except in circumstances of allegation, supported by evidence, of non-monetary consideration having been received for inclusion of money value such consideration, addition of any amount to the contracted price does not have the authority of law. Appeal allowed - decided in favor of appellant. Issues:1. Inclusion of reimbursable expenses in assessable value.2. Tax liability on amounts received from the client.3. Liability as provider of 'manpower recruitment or supply service'.Issue 1: Inclusion of reimbursable expenses in assessable value:The appellant, engaged in disseminating information to farmers through a rural network, appealed against the inclusion of reimbursable expenses in the assessable value for tax computation. The dispute centered around whether the amounts received from the client, claimed as reimbursement for expenses incurred, should be included in the assessable value. The appellant argued that a Supreme Court decision clarified the issue pre-May 2015, limiting tax liability to the consideration for the service provided. The Tribunal held that the demand for tax should only be on the contracted amount discharged by the appellant, as per the legislative intent.Issue 2: Tax liability on amounts received from the client:The tax authorities contended that amounts received from the client, beyond the contracted remuneration, should be included in the assessable value for tax calculation. The appellant's argument relied on various legal precedents, including decisions by the Supreme Court and High Courts, to support their position. The Tribunal, after considering the arguments, held that additional receipts beyond the agreed recompense for a service must be proven as additional consideration to be taxable. The demand for tax under 'business auxiliary service' was restricted to the amount discharged by the appellant on the contracted sum.Issue 3: Liability as provider of 'manpower recruitment or supply service':Regarding the liability as a provider of 'manpower recruitment or supply service,' conflicting decisions by the Tribunal were presented. The appellant claimed to act as a 'pure agent' for making payments to deputed employees, but lacked evidence of retaining any reimbursement. The Tribunal analyzed the nature of service providers and the scope of taxable services in different decisions. Ultimately, it was concluded that unless supported by evidence, any addition to the contracted price beyond monetary consideration does not hold legal authority. The impugned order was set aside, and the appeal was allowed based on the findings.This judgment delves into the complexities of tax liability, assessable value determination, and the interpretation of legal provisions concerning service taxation. Through a detailed analysis of legal precedents and legislative intent, the Tribunal provided a comprehensive resolution to the issues raised by the appellant, ultimately setting aside the impugned order and allowing the appeal.