TaxTMI 
TaxTMI 
TaxTMI 
2024 (7) TMI 384
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....pective parties, the matter is taken up for hearing. [5] The brief facts of the case are as under: [5.1] The petitioner No. 1 is engaged in the business of plant engineering and construction, and is inter alia engaged in the provision of consulting engineering and other services to various entities located in and outside India. The petitioner No. 1 has been periodically filing its Service Tax Returns and has been paying appropriate Service Tax in accordance with law. [5.2] On 23rd February 2016, a communication came to be addressed by the Superintendent (R-II), Service Tax Division-II, Vadodara, directing the petitioner No. 1 to submit certain documents and along with the said communication, a letter addressed by the Assistant Audit Officer / CERA-IV was also provided to the petitioner No. 1 communicating that the petitioner No. 1 was to effectively levy and collect service tax on the difference between the actual cost incurred and the contract price (when the actual cost incurred was higher than the contract price. [5.3] In response to the aforesaid letter, the petitioner No. 1, vide its letter dated 26th May 2016, submitted as under: (i) that the methodology of accounting a....
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....ow cause notice dated 31st October 2017 is issued by the respondent No. 3 on the similar issue of alleged non-payment of service tax on losses suffered by the petitioner No. 1, which is a subject matter of challenge in this petition. [6] Learned Senior Advocate Mr. Minir Joshi for the petitioners, at the outset, submitted that the issue of charging service tax, on the basis of Rule 2 (c) and Rule 5 (1) of the Service Tax (Determination of Value) Rules, 2006 (for short, "the Rules 2006") and Section 67 of the Finance Act, 1994 (for short, "the Act"), Rule 5 (1) of the Rules 2006 cannot be sustained in view of the decision of the Hon'ble Supreme Court in the case of Union of India vs. Intercontinental Consultants and Technolocrats Pvt. Ltd. reported in 2018 (10) GSTL 401 (SC) and thereby, Rule 5 (1) of the Rules 2006 has been held to be ultra vires Section 67 of the Act. It was further submitted that the case of the petitioner relates to the year 2014-15, whereas Section 67, which was amended by the Finance Act, 2015 with effect from 14th May 2015, whereby Clause (a) deals with "consideration" includes any reimbursable expenditure or cost incurred by the service provider and charged....
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....nue of expenses or additional expenses incurred by the petitioner - assessee which was treated as part of consideration as per Rule 5 and Rule 2 (c) of the Rules read with Section 67 of the Finance Act, 1994. [11] The Hon'ble Supreme Court. in the case of Intercontinental Consultants and Technocrates Pvt Ltd (supra), referring to the provisions of Rule 5 of the Rules 2006, Rule 2(c) of the Rules, 2006 and Section 67 of the Finance Act, 1994, has held as under: "6. Rule 5 was brought into existence w.e.f. June 1, 2007. The demand which was made in the show cause notice was covered by the period from October, 2002 to March, 2007. Against this show cause notice, the respondent preferred Writ Petition No. 6370 of 2008 in the High Court of Delhi challenging the vires thereof with three prayers, namely: (i) for quashing Rule 5 in its entirety of the Service Tax (Determination of Value) Rules, 2006 to the extent it includes the reimbursement of expenses in the value of taxable service for the purpose of charging service tax; and (ii) for declaring the rule to be unconstitutional and ultra vires Sections 66 and 67 of the Finance Act, 1994; and (iii) for quashing the impugned sh....
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....s 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 doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice. Illustration 1 : X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X including charges for Television advertisement and paid service tax on the total consideration billed. In such a case, consideration for the service provided is what X pays to Y. Y does not act as an agent behalf of X when obtaining the television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X. Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his servic....
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....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 1, 2006. Since the cases before us involve period prior to the aforesaid amendment as well as post amendment period, it would apt to take note of both unamended and amended provisions. Unamended Section 67 was in the following form: ""67. Valuation of taxable services for charging service tax. For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such provided or to be provided by him. Explanation 1. For the removal of doubts, it is hereby declared that the value of a taxable service, as the case may be, includes, (a) the aggregate of commission or brokerage charges by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock broker to any sub broker. (b) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit; (c) the amount of....
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.... tax is chargeable on any taxable service with reference to its value, then such value shall, (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax 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) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) 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. (4) Subject to the provisions of sub sections (1), (2) and (3), the value shall be determined i....
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.... by him, and illustration 3 given below the Rule which included the value of such services was a clear example of breaching the boundaries of Section 67. The High Court even went on to hold further pointed out that it may even result in double taxation inasmuch as expenses on air travel tickets are already subject to service tax and are included in the bill. No doubt, double taxation was permissible in law but it could only be done if it was categorically provided for and intended; and could not be enforced by implication as held in Jain Brothers v. Union of India. The High Court has also referred to many judgments of this Court for the proposition that Rules cannot be over-ride or over-reach the provisions of the main enactment [Central Bank of India & Ors. v. Workmen, etc., (1960) 1 SCR 200; Babaji Kondaji Garad v. Nasik Merchants Co-Operative Bank Ltd, (1984) 2 SCC 50; State of U.P. & Ors. vs. Babu Ram Upadhya, (1961) 2 SCR 679; CIT v. S. Chenniappa Mudaliar, (1969) 74 ITR 41; Bimal Chandra Banerjee v. State of M.P. & Ors. (1971) 81 ITR 105 and CIT, Andhra Pradesh v. Taj Mahal Hotel, (1971) 82 ITR 44]. The High Court also referred to the judgment of Queens Bench of England in....
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....ised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service 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 1, 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 sub-section (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 ....
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....gislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various 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....