Reimbursed diesel cost excluded from service-tax value; extended limitation and penalty fail absent suppression.

CESTAT held that diesel reimbursed separately under generator hire contracts was not part of the taxable value because it was procured on behalf of customers and had no nexus with the service of supplying tangible goods on hire. It noted that Rule 5 of the Service Tax (Determination of Value) Rules, 2006 had been held ultra vires Section 67, and the later amendment to Section 67 applied only from 14 May 2015. The tribunal also found that the assessee had disclosed the receipts in its records and returns, so there was no fraud, suppression, or intent to evade tax. The extended period and penalty were therefore not sustainable.

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Issues: (i) Whether diesel reimbursement formed part of the taxable value of the generator hire service and could be included in the assessable value for service tax; (ii) Whether the show cause notice could validly invoke the extended period of limitation and sustain penalty.

Issue (i): Whether diesel reimbursement formed part of the taxable value of the generator hire service and could be included in the assessable value for service tax.

Analysis: The contracts and returns showed that diesel was billed separately and reimbursed by the customers, while service tax was charged only on the generator rent. The reimbursed diesel cost was procured on behalf of the customers and had no nexus with the taxable service of supplying tangible goods on hire. The valuation issue was governed by Rule 5 of the Service Tax (Determination of Value) Rules, 2006, which had already been held ultra vires Section 67 of the Finance Act, 1994, and the later amendment to Section 67 operated only from 14 May 2015. The tribunal precedent relied upon in the judgment also held that diesel cost is not includable in the rental value of DG sets.

Conclusion: The diesel reimbursement was not includable in the taxable value and the demand on this count could not be sustained.

Issue (ii): Whether the show cause notice could validly invoke the extended period of limitation and sustain penalty.

Analysis: The assessee had reflected the receipts in its books, income tax returns, and service tax returns for the taxable component, and the department was already aware of the reimbursement pattern. Mere non-reporting of the reimbursed diesel amount in the service tax return did not amount to fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade tax. In the absence of the statutory ingredients for invoking the proviso to Section 73(1) of the Finance Act, 1994, the extended period could not be applied, and the penalty provision also could not survive.

Conclusion: The extended period of limitation was not invocable and the penalty was not sustainable.

Final Conclusion: The impugned orders were set aside, the demands were held unsustainable, and the appeals succeeded with consequential relief.

Ratio Decidendi: Reimbursed expenditure unconnected with the taxable service is not includable in service-tax valuation, and the extended period under Section 73(1) of the Finance Act, 1994 can be invoked only on proof of wilful suppression or equivalent intent to evade tax.

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