2019 (7) TMI 1701 - CESTAT NEW DELHI - Service Tax

Head Note / Extract:
Classification of services - mining services or Business Auxiliary Services? - activity of beneficiation of coal - According to the Department this would fall under the category of BAS prior to 1 June, 2007, while according to the appellant it is ‘in relation to mining’ and, therefore, taxable with effect from 1 June, 2007 only. HELD THAT:- This issue was examined at length by a Division Bench of the Tribunal in Aryan Energy [2008 (5) TMI 248 - CESTAT BANGALORE]. The appellant therein was also engaged in the activity of beneficiation of coal on behalf of the KPCL. The Adjudicating Authority classified the said activity under BAS. The Division Bench of the Tribunal observed that the said activity would be covered under mining services with effect from 1 June, 2007 and Service Tax could not be levied under BAS for any period prior to 1 June, 2007. In the instant case, the definition of BAS did not undergo any change when a new service ‘in relation to mining’ was introduced with effect from 1 June, 2007. The Department admits that with effect from 1 June, 2007, the activity carried out by the appellant is covered under the category of service in relation to mining. This activity could not, therefore, have been categorized under BAS prior to 1 June, 2007 - the demand of Service Tax in the impugned order under BAS from 16 June, 2005 to 30 May, 2007 is not justified. It has been considered necessary to examine the aforesaid approach of the Principal Commissioner as Orders of the Adjudicating Authorities or the first Appellate Authority are coming before the Tribunal in which the binding decisions of the Tribunal are being ignored and a contrary view is taken either for the reason stated in the aforesaid Order of the Principal Commissioner or for the reason that the Department ‘has not accepted the decision of the Tribunal’ as it had filed an appeal before the High Court or the Supreme Court. Whether the reimbursements received by the appellant from the customers towards transportation charges, railway freight can be included in the taxable value? - HELD THAT:- Section 67 of the Act was considered and explained by the Supreme Court in Union of India and Others v. Intercontinental Consultants and Technocrats Private Limited [2018 (3) TMI 357 - SUPREME COURT]. The appellant therein was providing consulting engineering services. It received payment not only for the services provided by it but was also reimbursed for the expenses incurred by it on air travel, hotel stay, etc. It paid Service Tax on the amount received by it for services rendered to 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 by the Department. The Service Tax is on the “value of taxable services” and, therefore, it is the value of the services which are actually rendered which has to be ascertained for the purpose of calculating the Service Tax. It is for this reason that the Supreme Court observed that the expression “such” occurring in Section 67 of the Act assumes importance. It is in this context that the Supreme Court observed in Paragraph 26 that the authority has to find what is the gross amount charged for providing “such” taxable services and so any other amount which is calculated not for providing such taxable service 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 either prior to its amendment on 1 May, 2006 or after this amendment 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. The reimbursement charges could not have been included in the taxable value - the order passed by the Principal Commissioner confirming the demand for the reimbursement charges, therefore, needs to be set aside - Appeal allowed - decided in favor of appellant.