TaxTMI 
TaxTMI 
2024 (10) TMI 902
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch is actual cost plus 5% service fee; the expenses like conveyance, rent, telephone, repairs, insurance, sponsorship etc incurred in the course of rendering the services were reimbursed to the appellant at actual basis. The department conducted an audit of the accounts of the appellant for the period 01.04.2001 to 30.03.2005 and it was observed that the appellant have not paid service tax on the expenditure reimbursed to them by the group companies. A show cause notice covering the period 01.04.2003 to 30.04.2006 was issued to the appellant and was confirmed by the impugned order dated 11.01.2012 by invoking extended period. The impugned order held that : The reimbursable expenses are consideration for providing services and are subjected to be taxed. The Circular dated 07.10.1998 issued on the occasion of budget is only informatory in nature and effective in that year alone. The expenses being incurred and charged only in course of provision of service, hence service tax is payable. Trade notices from different Commissionerates are not applicable. Rule 5 of Service Tax (Determination of Value) Rules, 2005 is categorical in holding that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an alternate argument, the ld. Counsel submits that the service provided by the appellant during the period of dispute cannot be classified under 'Management Consultancy Services' and service tax is not payable on even the 5% of the amount received as mark up; the appellant provided all day-to-day assistance required to carry on the business of their customers; thus, they were rendering 'Support Services' which are taxable from 01.05.2006. 5. The ld. Counsel further submits that introduction of a new entry and inclusion of certain services in that entry pre-supposes that the said entry was not taxable before such introduction. In this regard, he relies on the following cases: Indian National Ship Owners' Association vs. UOI - 2009 (14) STR 289 (Bom.) SRF Ltd vs. Commissioner - 2016 (331) ELT A138 (SC) Anand Automotive Ltd vs. CST - 2022 (59) GSTL 66 (Tri. Delhi) CCE & ST (LTU), Mumbai vs. Shipping Corporation of India Ltd - 2016 (46) STR 835 (Tri. Mum.) affirmed by SC as 2018 (8) GSTL J68 (SC) Dr. Lal Path Labs Pvt Ltd vs. CCE, Ludhiana - 2006 (4) STR 527 (Tri. Del.) 6. The ld. Counsel also submits that entire exercise is revenue neutral....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act. 22. Section 66 of the Act is the charging Section which reads as under: "there shall be levy of tax (hereinafter referred to as the service tax) @ 12% of the value of taxable services referred to in sub-clauses of Section 65 and collected in such manner as may be prescribed." 23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various sub-clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the "value of taxable services". Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon. 24. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect." 29. In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with "consideration" is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the Learned Counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in na....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st be the basis of every legal rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later." 30. As a result, we do not find any merit in any of those appeals which are accordingly dismissed." 10. Further, we find that the Tribunal in the case of Dream Loanz (supra) has held as follows: "7. The judgment in the case of Malabar Management (supra) as well as Intercontinental Technocrats (supra) is also pending decision before the Hon"ble Supreme Court and the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rvice 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 goes beyond the scope of Section 67 which was impermissible as rules could be framed only for carrying out the provisions of the 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. 39. The Supreme Court noticed the various reimbursable claims which were included in the gross value. The Supreme Court noted that Rule 5 does bring within its sweep the expenses which are incurred while rendering the service and are reimbursed and, therefore, what was required to be decided was whether Section 67 of the Act permits subordinate legislation to be enacted as done by Rule 5. It needs to be noted that prior to 19 April, 2006, in the absence of a Rule, the valuation was required to be done as per the provisions of Section 67 of the Act. The Supreme Court noticed that the charging Section 66 provides that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ontention of the appellant's Counsel that reimbursed expenses are not includable in the assessable value in view of the decision of the Hon'ble Apex Court in the case of Intercontinental Consultants (supra), has submitted that in view of the decision of the Larger Bench of the Tribunal in the case of Sri Bhagavathy Traders (supra), it is to be examined as to the nature of the reimbursed expenses and only when they qualify as such, their includibilty in the assessable value can be decided. However, as we found above, it is for the department to prove the allegation with the evidence; moreover, we find that the decision of the Hon'ble Apex Court in the case of Intercontinental Consultants (supra) is after the decision of Larger Bench of the Tribunal in the case of Sri Bhagavathy Traders (supra) and therefore, reliance on the decision of the Larger Bench is misplaced. In the light of the judgment of the Hon'ble Supreme Court in the case of Intercontinental Consultants (supra) and in terms of Section 67 of the Finance Act, 1994, service tax is to be levied on the consideration for the services rendered and not for any reimbursement of expenses particularly paid to third parties. Moreov....