TaxTMI 
TaxTMI 
2018 (3) TMI 357
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....nt(s) : Mr. K. Radhakrishnan, Sr. Adv., Ms. Nisha Bagchi, Adv., Mr. B. Sunita Rao, Adv., Ms. Shirin Khajuria, Adv., Mr. Rajiv Nanda, Adv., Mr. Rupesh Kumar, Adv. And Mr. B. Krishna Prasad, AOR For the Respondent(s) : Mr. J. K. Mittal, Adv., Mr. Sanjay Grover, Adv., Mr. K. V. Mohan, AOR, Mr. Praveen Swarup, AOR, Mr. Pramod B. Agarwala, AOR, Mr. R. Parthasarathy, AOR, Mr. Rajiv Shankar Dvivedi, AOR, Mr. Aravindh S., AOR, Mr. A. Lakshmi Narayanan, Adv. And Mr. Mohinder Jit Singh, AOR JUDGMENT A.K. SIKRI, J. In all these appeals, legal issue that needs determination is almost identical, though there may be little variation on facts. This difference pertains to the nature of services provided by the respondents/assessees who are all covered by the service tax. The fringe diferences in the nature of services, however, nature of differences, however, has no impact on the final outcome. 2) All the assessees are paying service tax. The services which these assessees are rendering broadly fall in the following four categories: (a) Consulting engineering services. (b) Share transfer agency services. (c) Custom house agent services covered by the....
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....pect of the expenses incurred by it, which was reimbursed by the clients. On 19.10.2007, the Superintendent (Audit) Group II (Service Tax), New Delhi issued a letter to the petitioner on the subject "service tax audit for the financial year 2002-03 to 2006-07. In this letter, it was mentioned by the appellant that service tax was liable to be charged on the gross value including reimbursable and out of pocket expenses like travelling, lodging and boarding etc. and the respondent was directed to deposit the due service tax along with interest @13% under Sections 73 and 75 respectively of the Act. In response, the respondent provided month-wise detail of the professional income as well as reimbursable out of pocket expenses for the period mentioned in the aforesaid letter. Thereafter, a show cause notice dated March 17, 2008 was issued by the Commissioner, Service Tax, Commissionerate vide which the respondent was asked to show cause as to why the service tax should not be recovered by including the amounts of reimbursable which were received by the respondent, pointing out these were to be included while arriving at the gross value as per provisions of Rule 5(1) of the Rules. 6) ....
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....ovided by the third party; • the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service; • the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and • the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account. • Explanation 1 : For the purposes of sub rule (2), "pure agent" means a person who - • enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service; • neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service; • does not use such goods or services so procured; and • receives only the actual amount incurred to procure such goods or services. Explanation 2 : For the removal of do....
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....the Company X during the tour. At the end of the tour, the chauffeur returns the balance of the amount with a statement of his expenses and the relevant bills. Company X charges these amounts from the recipients of service. The cost incurred by the chauffeur and billed to the recipient of service constitutes part of gross amount charged for the provision of services by the company X." 8) The case set up by the respondent in the writ petition was that Rule 5(1) of the Rules, which provides that all expenditure or cost incurred by the service provider in the course of providing the taxable services shall be treated as consideration for the taxable services and shall be included in the value for the purpose of charging service tax, goes beyond the mandate of Section 67. It was argued that Section 67 which deals with valuation of taxable services for charging service tax does not provide for inclusion of the aforesaid expenditure or cost incurred while providing the services as they cannot be treated as element/components of service. Section 67 was amended by Finance Act, 2006 w.e.f. May 01, 2006. Since the cases before us involve period prior to the aforesaid amendment as well as p....
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....him; (vi) the cost of parts or other material, if any, sold to the customer during the course of providing maintenance or repair service; (vii) the cost of parts or other material, if any, sold to the customer during the course of providing erection, commissioning or installation service; and (viii) interest on loan. Explanation 2 - Where the gross amount charged by a service provider is inclusive of service tax payable, the value of taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged. Explanation 3. For the removal of doubts, it is hereby declared that the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service." 9) After its amendment w.e.f. May 01, 2006, a much shorter version was introduced which reads as under: "67. Valuation of taxable services for charging service tax. (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, (i) in a case where the ....
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....by him, in a case where the consideration for the service is money. Emphasising on the words 'for such service', the High Court took the view that the charge of service tax under Section 66 has to be on the value of taxable service i.e. the value of service rendered by the assessee to the NHAI, which is that of a consulting engineer, that can be brought to charge and nothing more. The quantification of the value of the service can, therefore, never exceed the gross amount charged by the service provider for the service provided by him. On that analogy, the High Court has opined that scope of Rule 5 goes beyond the Section which was impermissible as the Rules which have been made under Section 94 of the Act can only be made 'for carrying out the provisions of this Chapter' (Chapter V of the Act) which provides for levy quantification and collection of the service tax. In the process, the High Court observed that the expenditure or cost incurred by the service provider in the course of providing the taxable service can never be considered as the gross amount charged by the service provider 'for such service' provided by him, and illustration 3 given below the Rule which included t....
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....submitted that this expenditure or cost would be part of consideration for taxable services. It was, thus, argued that essential input cost had to be included in arriving at gross amount charged by a service provider. 12) It was further submitted that Section 67 of the Act was amended w.e.f. May 01, 2006 and this also retained the concept of 'the gross amount charged' for the purpose of arriving at valuation on which the service tax is to be paid. The learned counsel pointed out that sub-section (4) of amended Section 67 categorically provides that the value has to be determined in such a manner as may be prescribed and in pursuant thereto, Rule 5 of the Rules which came into effect from June 01, 2007, provided for 'inclusion in or exclusion from value of certain expenditure or costs'. It was submitted that there was no dispute that as per this Rule, all such expenditure or costs which are incurred by the service provider in the course of providing taxable services are to be treated as consideration for the taxable services provided or to be provided for arriving at valuation for the purpose of charging service tax, except those costs which were specifically excluded under sub-r....
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....e upon the manufacturer of excisable articles at the stage of or in connection with manufacture or production. In a separate judgment, Jayakar, J. held that all duties of excise are levied on manufacture of excisable goods and can be levied and collected at any subsequent stage up to consumption." 14) It was also submitted that while dealing with the valuation of a taxable service, the provision which deals with valuation has to be taken into consideration and no assistance can be taken from charging section, as held in Union of India & Ors. v. Bombay Tyre International Limited & Ors. (1984) 1 SCC 467: "8. Mr N.A. Palkhivala, learned counsel for the assessees, has propounded three principles which, he contends, form the essential characteristics of a duty of excise. Firstly, he says, excise is a tax on manufacture or production and not on anything else. Secondly, uniformity of incidence is a basic characteristic of excise. And thirdly, the exclusion of post-manufacturing expenses and post-manufacturing profits is necessarily involved in the first principle and helps to achieve the second. Learned counsel urges that where excise duty is levied on an ad valorem b....
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....fit must be excluded. Considerable emphasis has been laid on the submission that as excise duty is a tax on the manufacture or production of goods it must be a tax intimately linked with the manufacture or production of the excisable article and, therefore, it can be imposed only on the assessable value determined with reference to the excisable article at the stage of completed manufacture and to no point beyond. To preserve this intimate link or nexus between the nature of the tax and the assessment of the tax, it is urged that all extraneous elements included in the "value" in the nature of post-manufacturing expenses and post-manufacturing profits have to be off-loaded. It is pointed out that factors such as volume, quantity and weight, which enter into the measure of the tax, are intimately linked with the manufacturing activity, and that the power of Parliament under Entry 84 of List I of the Seventh Schedule to the Constitution to legislate in respect of "value" is restricted by the conceptual need to link the basis for determining the measure of the tax with the very nature of the tax. xxx  ....
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....oduced or home-manufactured goods, no matter at what stage it is collected...." (emphasis supplied). The position was explained further in Province of Madras v. Boddu Paidanna and Sons [1942 FCR 90, 101 : AIR 1942 FC 33] where the Federal Court observed: "... There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed, or given away. A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively to collect the duty (as in the case of most of the Indian Excise Acts) when the commodity leaves the factory for the first time, and also because the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer, which he could not do if the commodity had, for example, been destroyed in the factory itself. It is the fact of manufacture which attracts the duty, even though it may be collected later;...." The observations show that while the nature of an excise is indicated by the fact that it is imposed in respect....
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....IR 1939 FC 1, 6 : 1939 FCR 18] , Province of Madras v. Boddu Paidanna and Sons [1942 FCR 90, 101 : AIR 1942 FC 33] and Governor-General in Council v. Province of Madras [1945 FCR 179 : AIR 1945 FC 98] . This Court then summarised the law as follows: "... Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience." Other cases followed where the nature of excise duty was reaffirmed in the terms set out earlier, and reference may be made to In re Bill to Amend Section 20 of the Sea Customs Act, 1878 and Section 3 of the Central Excises And Salt Act, 1944 [AI....
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....we have explained, the standard adopted by the Legislature for determining the "value" may possess a broader base than that on which the charging provision proceeds. The acceptance of the further statement contained in the formulation of the third proposition, that the exclusion of post-manufacturing expenses and post-manufacturing profits helps to achieve uniformity of incidence in the levy of excise duty, depends on what is the point at which such uniformity of incidence is contemplated. It is not necessarily involved at the stage of sale of the article by the manufacturer because we find, for example, that under the amended Section 3(3) of the Central Excises and Salt Act, different tariff values may be fixed not only (a) for different classes or descriptions of the same excisable goods, but also (b) for excisable goods of the same class or description (i) produced or manufactured by different classes of producers or manufacturers, or (ii) sold to different classes of buyers. That the "value" of excisable goods determined under the new Section 4(1)(a) may also vary according to certain circumstances is evident from the three clauses of the proviso to that clause. Clause....
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....ance Act, 2015 w.e.f. May 14, 2015. By this amendment, explanation has been added which now lays down that consideration includes the reimbursement of expenditure or cost incurred by the service provider. Taking clue therefrom, he developed the argument that for the first time, w.e.f. May 14, 2015, reimbursement of expenditure or cost incurred by the service provider gets included under the expression 'consideration', which legal regime did not prevail prior to May 14, 2015. Therefore, for the period in question, the 'consideration' was having limited sphere, viz. It was only in respect of taxable services provided or to be provided. On that basis, submission was that for the period in question that is covered by these appeals, there could not be any service tax on reimbursed expenses as Section 67 of the Act did not provide for such an inclusion. Mr. Mittal also referred to para 2.4 of Circular/Instructions F. No. B-43/5/97-TRU dated June 6, 1997 wherein it is clarified that '...various other reimbursable expenses incurred are not to be included for computing the service tax". 17) Coming to the main arguments revolving around Sections 66 and 67, he submitted that the High Court....
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....value was exempted. ** Service Tax was leviable only on 40% of value, 60% value was exempted, but prior to 01-04-2012, tax was only on 10% of value of tickets. *** Service Tax was leviable only on 30% of value, 70% value was exempted. **** Service Tax was leviable only on 50% of value, 50% value was exempted. 18) Following judgments were referred to and relied upon by Mr. Mittal for placating the aforesaid submissions: (a) In the first instance, reference was made to the Constitution Bench judgment in the case of Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667 wherein this Court held: "12. ... The statute should clearly and unambiguously convey the three components of the tax law i.e. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter." (b) The learned counsel also relied upon the following observations in case of Govind Saran Ganga Saran v. Commissioner of Sales Tax & Ors. (1985) ....
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.... in the impugned judgment dated 30.11.2012 Transportation, office rent, office supplies and utilities, testing charges, document printing charges, travelling, lodging, boarding etc. (post 19.04.2006) Transportation, office rent, office supplies, office furniture and equipment, reports and documents printing charges etc. [Pre 19.04.2006]. [page 62-64] 2 6090/2017 CST v. Intercontinental Consultants Period: 2007-2008 [post coming into effect of impugned Rule 5 on 01.06.2007] Demand: Rs. 1,50,62,017/- Show Cause Notice dated 24.10.2008 was issued on the basis of the earlier SCN dated 17.03.2008 for the subsequent period. O-I-O dated 02.03.2010 covered both SCNs dated 17.03.2008 & 24.10.2008. Transportation, office rent, office supplies & utilities, testing charges, document printing charges, travelling, lodging, boarding etc. [page 157] B. Share Transfer Agency Service: Sl. No. Civil Appeal details Facts Reimbursable claimed as not includible 1 6866/2014 CST v. Through its Secretary Period: 01.04.2008-31.03.2010 Demand:Rs.13,83,479 Reimbursement of Expenses, out of pock....
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....re dropped by the OI- O. However on appeals the O-I-O was set aside, hence W.P's were filed. CFS charges, steamer agent charges, delivery order charges, Airport/Customs charges [page 25- 26/para C] Airline/steamer charges, storage and handling charges, packing charges, transport charges, fumigation charges, insurance survey charges, original certificate charges [pages 62-62] Charges paid to: Steamer agent, Custom Freight Station, Airport Authority of India and Transporters [page 106-107] 6. 7688/2014 CST v. Shree Gayatri Clearing Agency Period: 01.10.2003 to 31.03.2008 [pre and post coming into effect of impugned Rule 5 on 01.06.2007] Demand: Rs. 9,65,652/- SCN issued on 21.04.2009. O-I-A dated 31.07.2013 set aside demand for the period 18.04.2006-31.03.2008 in view of circular dated 06.06.1997. Customs Examination Charges, Misc. Expenses, Sundry expenses, strapping and re-strapping charges, documentation charges. 7. 7685/2014 Comm. of Customs v. Ramdas Pragji Forwarders Pvt. Ltd. Period:2004-05 & 2007-08 The Adjudicating Authority held that no Service Tax was payable on reimbursable amo....
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....,74,30,683/- Value of explosives and diesel oil supplied free of cost 7. 10223- 10224/2017 CCE & ST v. Mehrotra Buildcon Period: Apr'09 to Jan'10 & February 2010 to September 2010 Demand:Rs.21,48,835/- + Rs. 18,06,655/- Value of diesel oil supplied free of cost 8. 5444/2017 CCE & ST v. Mehrotra Buildcon Not available Value of diesel oil supplied free of cost E. Sl. No. Civil Appeal details Facts Reimbursable claimed as not includible 1. 10626-10627/2017 Period:Apr'04 to Mar'06 [prior to coming into effect of impugned Rule 5 on 01.06.2007] Demand:Rs.24,70,790/- SCN dated 22.10.2008 Non-payment of Service Tax on the amount received as reimbursement by way of debit notes in addition to amount charged through invoices for providing 'Event Management Service', Section 65(40) and Section 65(90)(zu) [page 83] Hiring of venue, merchandise, artists, travel, courier, food and beverages, administrative expenses, [page 76 @78] 21) Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service ....
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....e cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25) This position did not change even in the amended Section 67 which was inserted on May 01, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of subsection (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider. 26) It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner: "Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the byelaw, if not in conformity with the statute in order to give effect to the statutory provision the Rule or bye-law has to be ignored. The statutory provision ahs precedence and must be complied with." 27) The aforesaid principle is reiterate....
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....principles of "interpretation of statutes". Vis-à-vis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof. 28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1] , a retrospective legislation is contrary to the general principle that legi....