TaxTMI 
TaxTMI 
2024 (7) TMI 384
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....in narrow compass and with the consent of learned advocates for the respective 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 date....
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....st and penalty should not be recovered from the petitioner No. 1. [5.7] Along with the aforesaid show cause notice, another show 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, where....
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....ute that the show cause notice refers to differential value or amount of taxable service of Rs. 165,82,77,786/- pertaining to unbilled revenue 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 ....
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....tion 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 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....
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.... 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 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 b....
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....lanation 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 1, 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 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 charg....
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....hat 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 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 ....
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....vices 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 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 May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised 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 auth....
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.... with the amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited [(2015) 1 SCC 1] wherein it was observed as under: "27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation 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 th....