TaxTMI 
TaxTMI 
2022 (2) TMI 955
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....ice Tax Appeal No.52613 of 2018 has been filed by the appellant to assail the order dated 18.05.2018 passed by the Commissioner confirming the demand of Rs. 117,49,52,281/- under section 73(2) of the Finance Act with interest and penalty. This order adjudicates the show cause notice dated 18.05.2018 issued to the appellant for the period 01.10.2014 to 31.03.2016. 3. Service Tax Appeal No. 51698 of 2017 has been filed by the Commissioner against that part of the order dated 16.01.2017 by which the penalty against the appellant has been dropped for the reason that benefit of waiver of penalty was available to the appellant under section 80 of the Finance Act. 4. The appellant, which is a wholly owned undertaking of the Government of Rajasthan [the State Government ] , acts as a nodal agency in the implementation of various Information Technology related projects of the Department of Information Technology and Communication[Department of IT&C]in the State Government. 5. The process involved in execution of the projects has been explained by the appellant in the following manner: 6. The various public benefit schemes, for whose implementation the appellant....
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.... to service tax. In addition, the orders also confirm the levy of service tax on the amount collected/forfeited as liquidated damages by the appellant from the vendors on account of breach of contract. 11. It is these two orders dated 16.01.2017 and 18.05.2018 that have been assailed by the appellant in the first two appeals. In the order dated 16.01.2017, the penalty proposed against the appellant was dropped on the ground that benefit of waiver of penalty was available to the appellant under section 80 of the Finance Act. This part of the order has been assailed by the Revenue in the third appeal. 12. Shri B.L. Narasimhan, learned counsel appearing for the appellant made the following submissions: i. The amount received from the State Government for payment to vendors is not towards any consideration and, therefore, not taxable. In terms of section 67(1) of the Finance Act, the value of any taxable service is the gross amount charged by the service provider from the service recipient 'for such service'. The phrase 'for such service' is required to be understood to mean that the consideration should necessarily have a direct nexus with the service.....
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....ervice. Instead, these are in the nature of a deterrent imposed so that such a breach or non-performance is not repeated. Thus, no service tax is leviable on liquidated damages. In this connection, reliance has been placed on the decision of the Tribunal in M/s. South Eastern Coalfields Ltd. vs. Commissioner of Central Excise and Service Tax [2020 (12) TMI 912 - CESTAT, New Delhi]; viii. No service tax can be levied in the absence of consideration; ix. Amount returned by the appellant to the State Government is required to be reduced from the taxable value; x. Demand should be dropped on account of being revenue neutral; xi. Cum-tax computation should be extended; xii. The extended period of limitation could not have been invoked in the facts and circumstance of the case; and xiii. No penalty could have been imposed. 13. Dr. Neha Garg, learned authorized representative appearing for the department, however, supported the impugned order and made the following submissions: i. The appellant did not act as a pure agent s....
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....e payment would be from the budget heads set out by the Department of Labour. Invoices were raised by M/s. Compucom Software Limited on the appellant and after the project was completed, the appellant submitted utilization certificate to the State Government. 16. It has to be determined whether the amount received by the appellant from the State Government for payment to vendors would be a consideration for any service provided by the appellant to the State Government and, therefore, taxable. It needs to be remembered that on the service charges received by the appellant from the State Government Departments, service tax was paid by the appellant and this fact is not in dispute in the appeals. The dispute is about the amount received from the State Government Departments, which amount was paid by the appellant to the vendors. The Revenue has demanded the service tax on this amount. 17. The submission of the learned counsel for the appellant is that no service tax can be levied on the amount received for onward payment to the vendors and in this connection, reliance has been placed on section 67 of the Finance Act which deals with valuation of taxable services. The....
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....Act 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 of the Finance Act has to be on the value of taxable service i.e. the value of service rendered by the assessee and the quantification of the value of 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 opined that the scope of rule 5 of the Valuation Rules goes beyond the scope of section 67 which was impermissible as rules could be framed only for carrying out the provisions of the Finance Act. In taking this view, the High Court observed that the expenditure or cost incurred by the service provider for providing the taxable service can never be considered as the gross amount charged by the service provider "for such service" provided by him. Paragraph 18 of the judgment of the High Court is reproduced below: "18. Section 66 levies service tax at a particular rate on the value of ....
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....ce cannot be a part of that valuation as the amount is not calculated for providing "such taxable service". This, according to the Supreme Court, is the plain meaning attached to section 67 of the Finance Act, either prior to its amendment on 01 May, 2006 or after this amendment and if this be so, then rule 5 of the Valuation of Rules went much beyond the mandate of section 67 of the Finance Act. Paragraph 26 of the judgment of the Supreme Court is reproduced below: "26. In this hue, the expression "such" occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing "such" taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as that amount is not calculated for providing such "taxable service". That according to us is the plain meaning which is to be attached to Section 67 (unamended i.e. prior to 1-5-2006) or after its amendment, with effect from 1-5-2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised th....
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.... service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply 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. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined" (emphasis supplied) 22. The factual position described above would clearly indicate that as a nodal agency appointed by the various State Government Departments, the primary responsibility of the appellant was to supervise and monitor the overall execution of projects; computation of estimate of cost; issuance of notice inviting tenders; and appointment of vendors. The vendors so appointed by the appellant then entered into the contracts with the appellant on behalf of the State Government. The vendors performed their obligations stipulated in the contracts for execution of the projects and upon completion of the projects, a working report with utilization certificates and invoices were furnished by the appe....
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....(GoR) And Rajcomp Info Services Limited (RISL) For Appointment of RISL As Nodal Agency For The Pilot Implementation of Labour Department Management System (LDMS) Project ******* Whereas As a part of eGovernance initiatives, the DoL, GoR has decided to implement the "Pilot implementation of Labour Department Management System (LDMS)", hereinafter referred to as the "project". And whereas As part of this MoU, the DoL, GoR hereby agrees to appoint RISL as "Nodal Agency" to the DoL, GoR to undertake the project execution work for the Pilot LDMS project as defined below in Para 5 of this MoU. And whereas RISL is exempted from payment of EMD/SD under Rule 57(2)(a)(i) of GF&AR Part-II. Now it is hereby agreed to by and between the parties hereto as under:- 1. Project Background/Overview a) ***** b) LDMS has been identified as one of the State Mission Mode Project under State eGovernance Action Plan owing to its functional critically and high-level of direct citizen interaction. The proposed LDMS has been designed taking into consideration the strengths and limitati....
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....Go-Live c) Coordination with all the stakeholders for successful implementation of Pilot LDMS project d) Upon successful Go-Live, RISL shall set-up a PMU at DoL by hiring an external Consulting agency, who shall assist the DoL, GoR in day-to-day operations and provide technical support during the O&M Period of one year. e) During the Implementation and O&M Period, RISL shall make payments to the implementing agency as per the agreed payment terms and SLA. f) All the activities/services as mentioned in Clause No. 3 above. ******* 7. Project Cost The total estimate project cost, including 2% contingency and RISL Service charges is as under: - Phase-I Cost Phase-II Cost Total Proj. Cost Total CAPEX (In Rs.) INR 3,76,17,750 INR 1,19,45,500 INR 4,95,63,250 Total OPEX (In Rs.) INR 72,27,906 INR 2,95,48,906 INR 3,67,76,813 Contingency @2% of CAPEX+OPEX INR 8,96,913 INR 8,29,888 INR 17,26,801 RISL Service Charge (In Rs.) Excl. Taxes INR 38,59,406 INR 35,85,944 INR 74,45,349 Total Project Cos....
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....)'. The utilization certificate for the Financial Year 2013-14 regarding implementation of the Labour Department Management System Project was also submitted by the appellant to the State Government. 32. The appellant also raised an invoice on the State Government for the services provided for the Financial Year 2013-14 and the same is reproduced below: "INVOICE To, The Secretary & Commissioner, Department of Information Technology & Communications, IT Building, Yojana Bhawan Campus, Jaipur Subject: Invoice for RISL Service Charges during FY 2013- 14 in "Pilot Implementation of LDMS Project" for Dept. of Labour (DoL), GoR by RISL Reference: RISL's Utilisation Certificate No. F4.2(63)/RISL/Tech/2012/ dated 28/03/2014 Sir, With reference to the above, please find below the requisite details." S.No. Details of the Work/Description Amount (INR) 1 RISL's approved service charges @10% calculation on Rs. 22,53,250.00/- as per details given in Utilisation Certificate No. F4.2(63)/RISL/Tech/2012 dated 28/03/2014 2,25,325.00 2. Service Tax including ....
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....nbsp; the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party; (vi) 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; (vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and (viii) 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- (a) 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; (b) 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; (c) does not use such goods or ser....
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.... provider to the recipient of service; Payments made to vendors were shown in respective invoices and in the utilization certificates. Service charges were independently collected, basis separate invoices. (vii) The service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and The appellant recovered the entire amount paid to vendors from the State Government. Amount (service charge) collected over and above suffer service tax, which has been paid by the appellant (viii) 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. In lieu of agency services, the appellant recovered service charge on which service tax was paid. These are over and above goods/services procured as pure agent from the vendors. 37. The aforesaid factual position demonstrated by the appellant are clearly borne out from the record and the contracts. 38. Thus, as all the conditions of rule 5(2) of the Valuation Rules are satisfied, the appellant acted as a pure agent as a result of w....
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....ischarged the service tax liability. We further find that the work order issued by the Government Department is in the nature of cost plus contract, wherein the respondent has been appointed as the implementing agency on behalf of the Government Department and the money has been received as a trustee. Further, the respondent is liable to account for every single rupee spent for on behalf of the Government. They are not entitled to appropriate a single rupee more than the agreed 7% as agency charge or administrative charges. Further, the activity of the respondent is held to be in the nature of pure agent. As such, no service tax can be demanded on the amount of advance received and /or on the amount spent out of that advance for the purpose of the project. It is also an admitted fact that the respondent has themselves not done any erection, commissioning or installation. Such work has been done by the vendors and/or by agencies appointed by the respondent /assessee. We further find that the assessee/respondent herein has only done the work of advising and assisting the sponsoring agency in selecting various venders, who would supply and /commission various items of work. The person....
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....om an act, or to tolerate an act or a situation, or to do an act;" 45. There has, therefore, to be a flow of consideration from one person to another when one person agrees to the obligation to refrain from an act, or to tolerate an act, or a situation, or to do an act. In other words, the agreement should not only specify the activity to be carried out by a person for another person but should specify the: (i) consideration for agreeing to the obligation to refrain from an act; or (ii) consideration for agreeing to tolerate an act or a situation; or (iii) consideration to do an act 46. Thus, a service conceived in an agreement where one person, for a consideration, agrees to an obligation to refrain from an act, would be a "declared service" under section 66E(e) read with section 65B(44) of the Finance Act and would be taxable under section 68 at the rate specified in section 66B. Likewise, there can be services conceived in agreements in relation to the other two activities referred to in section 66E(e) of the Finance Act. 47. This issue was examined at length b....
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....vice contemplated under section 66E (e). 30. The activities, therefore, that are contemplated under section 66E (e), when one party agrees to refrain from an act, or to tolerate an act or a situation, or to do an act, are activities where the agreement specifically refers to such an activity and there is a flow of consideration for this activity. ******** 32. In the present case, the agreements do not specify what precise obligation has been cast upon the appellant to refrain from an act or tolerate an act or a situation. It is no doubt true that the contracts may provide for penal clauses for breach of the terms of the contract but, as noted above, there is a marked distinction between 'conditions to a contract' and 'considerations for a contract'." 48. In this view of the matter, service tax could not have been levied on the amount recovered as liquidated damages. 49. The demands confirmed against the appellant by orders dated 16.01.2017 and 18.05.2018 that have been assailed in Service Tax Appeal No. 50631 of 2017 and Service Tax Appeal No. 52613 of 2018, therefore, cannot be sustained. 50. The Commissioner has filed Se....