TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1233
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....x amounting to Rs. 5,14,26,355/- has been confirmed and penalty under sections 76, 77 and 78 of the Act has also been directed to be paid. The period involved in this Appeal is from November 2007 to March 2012. 3. Service Tax Appeal No. 50956 of 2018 has been filed by M/s Munshilal Durga Prasad to assail the Order dated 11 January, 2018 passed by the Commissioner(Appeals) by which the Appeal filed by the appellant to assail the Order dated 30 September, 2015 passed by the Joint Commissioner, Central Excise Commissionerate, Jaipur has been dismissed. The Joint Commissioner by Order dated 30 September, 2015 confirmed the demand of service tax amounting to Rs. 6,56,034/- with interest and penalty. The period involved in this Appeal is from April 2012 to March 2013. 4. The appellants are service providers rendering "Management, Maintenance and Repair Service" and "Business Auxiliary Service" to various parties including M/s Bharti Infratel Limited, M/s Bharti Hexacom Limited and M/s Indus Towers Limited (hereinafter referred to as service recipients). The scope of work to be executed by the appellants in respect of their telecom tower sites includes Operation and Maintenance of base....
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....plained that the cost of diesel was not required to be included in the gross value of taxable service as the diesel was procured for and on behalf of the service recipients for providing maintenance or repair service and the recipients had reimbursed the actual cost of diesel. Similar reply was filed by M/s Munshilal Durga Prasad. 8. The Commissioner, however, did not accept the contentions and confirmed the demand of service tax. After noticing that diesel filling in DG sets was a part of the agreement and that the assessee had procured the diesel from different petrol pumps and that the service recipients were liable to pay the cost of diesel, the Commissioner observed that the work of diesel filling was a service defined in the scope of services in the agreement and diesel was an essential input to keep the DG sets operational for the purpose of providing such service. It is for this reason that the Commissioner observed that the cost of diesel would form part of the gross value of taxable service in terms of section 67 of the Act. 9. A similar Order dated 31 July, 2014 was passed by the Commissioner to the show cause notice dated April 2013 issued to M/s Munshilal Durga Pras....
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....the value of diesel was paid to the appellant by the service recipients upon proper valuation. Thus, the value of diesel paid by the service recipients to the appellants was in the nature of reimbursement, which could not be the subjected to levy of service tax; (iii) The element of service involved was "filing of diesel" on which service tax had been discharged. No activity involving a service has been rendered by the appellants corresponding to the value of diesel and, therefore, the value of diesel is not towards the provision of the service of "filing of diesel"; (iv) The Department and the Adjudicating Authority mis-construed the agreement in concluding that diesel is an 'input' required for the provision of output services. Diesel filing, is itself a 'service' for which a separate consideration is identified; (v) The impugned Orders rely upon the provision of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 that prescribes that the value of any expense/ cost incurred by a service provider while rendering a taxable service would be included, but the said Rule 5(1) has been struck down by the Supreme Court in Intercontinental Consultants as being ultra vi....
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.... charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) ----- (3) ----- (4) ----- Explanation. - For the purposes of this section, - (a) "consideration" includes - (i) any amount that is payable for the taxable services provided or to be provided; (b) ----- (c) -----" 17. Service (Determination of Value) Rules, 2006 have been framed by the Central Government under Section 94 of the Act. Rule 5(1) is reproduced below: "5(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service." 18. The agreements in the three Appeals are almost similar in nature. The terms of the agreement dated 27 April, 2010 entered into between M/s Bharti Infratel Limited and M/s Ganpati Associates can, therefore, be examined. Clause 2 of the Agreement deals with Appointme....
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....) ----- k) ----- l) Diesel filling, cleaning of DG sets and keep the record of fuel average and DG hrs. m) Service provider will fill the diesel as per the laid down process. They will ensure that the DG should have the adequate diesel all the time. They will also keep track of site wise diesel consumption and no. of hours DG running through monthly MIS. Diesel to be procured from Bharti authorised filling stations. n) -----" 23. The process for filling diesel has also been provided in the agreement and is as follows: "32 Diesel Filling Process * Bharti Technical team shall provide the list of site with the detailed LPH consumptions. * Service provider shall fill the diesel at site as per the daily consumptions. Service provider shall update site status to Bharti nominated officials on a daily basis. * Service provider shall ensure that there is no shortfall of diesel at any of the sites. In the event of any loss(s) incurred by Bharti for any site going down (becoming un-operational) due to shortfall of diesel, vendor shall be liable to pay for the damages incurred by Bharti on this account as per the damage/ penalty clause. * Service provider will submit co....
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.... contract or an agreement. A perusal of the aforesaid agreement between M/s Bharti Infratel Limited and M/s Ganpati Associates indicates that the scope of work to be performed includes electrical operation and management of BTS sites, diesel filling, general site maintenance and electricity bill collection and payment. In regard to filling of diesel, the fees to be paid to the appellant is Rs. 500/- per site per month for diesel filling at DHQ sites (District Headquarters) and Rs. 750/- per site per month for diesel filling at non DHQ sites. For diesel filling, the appellant has to raise bills after 7 days as per diesel consumption chart and the payment has to be made within 10 days. The agreement further stipulates that the service provider will fill the diesel as per the laid down process and ensure that the DG sets have adequate diesel at all times. The service provider is also required to keep track of diesel consumption and the number of hours DG sets run site wise. The diesel has to be procured from Bharti authorised filling stations and the payment mode is also described in Clause 33 of the agreement. 26. It would thus be seen that in respect of diesel filling services, the....
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....its clients but did not pay any service tax in respect of expenses incurred by it which were reimbursed by the clients. A show cause notice was issued to it to explain why service tax should not be charged on the gross value including reimbursable and out of pocket expenses. The provisions of Rule 5(1) of the Rules were resorted to for this purpose. A Writ Petition was filed challenging the vires of Rule 5 as being unconstitutional as well as ultra vires the provisions of Section 66 and 67 of the Act. The High Court of Delhi accepted the said contention and declared Rule 5 to be ultra vires the provisions of Section 66 and 67 of the Act. The High Court noted that both the amended and unamended Section 67 authorised the determination of value of taxable services for the purpose of charging service tax under Section 66 as the gross amount charged by the service provider for such services provided or to be provided by him in a case where consideration for such service is money. The High Court placed emphasis on the words "for such service" and 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 t....
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....t and if this be so, then Rule 5 went much beyond the mandate of Section 67. The Supreme Court, therefore, held that the value of material which is supplied free by the service recipient cannot be treated as "gross amount charged" as that is not a "consideration" for rendering the service. In fact, in regard to free supply of diesel and explosives, the Supreme Court specifically observed that they would not warrant inclusion while arriving at the gross amount charged on the service tax to be paid. 29. It will also be useful to refer to the decision of the Supreme Court in Bhayana Builders. Section 67 either prior to its amendment or subsequent to its amendment was interpreted by the Supreme Court and it was held that the cost of free supply of goods provided by the service recipient to the service provider is neither an amount "charged" by the service provider nor can it be regarded as "a consideration for the service provided by the service provider." The Supreme Court further held that on first principle also a value which is not a part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services pr....
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...., it has no nexus whatsoever with the taxable services for which value is sought to be determined" 13. A plain meaning of the expression 'the gross amount charged by the service provider for such service provided or to be provided by him' would lead to the obvious conclusion that the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the 'gross amount' simply, because of the reason that no price is charged by the assessee/service provider from the service recipient in respect of such goods/materials. This further gets strengthened from the words 'for such service provided or to be provided' by the service provider/assessee. Again, obviously, in respect of the goods/materials supplied by the service recipient, no service is provided by the assessee/service provider. Explanation 3 to subsection (1) of Section 67 removes any doubt by clarifying that the gross amount charged for the taxable service shall include the amount received towards the taxable service before, during or after provision of such service, implying thereby that where no amount is charged that has not to be included in res....
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....he words, 'any amount credited or debited, as the case may be', to any account whether called 'suspense account or by any other name, in the books of accounts of a person liable to pay service tax' would not include the value of the goods supplied free as no amount was credited or debited in any account. In fact, this last portion is related to the debit or credit of the account of an associate enterprise and, therefore, takes care of those amounts which are received by the associated enterprise for the services rendered by the service provider. 16. In fact, the definition of "gross amount charged" given in Explanation (c) to Section 67 only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term "gross amount charged" to enable the Department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered. The fact that it is an inclusive definition and may not be exhaustive also does not lead to the conclusion that the contract value can be ignored and th....