2024 (4) TMI 1285 - AT - Service Tax

Levy of service tax - appellant has received additional consideration in the form of rent free accommodation electricity and water expenses supply of vehicles etc. - non-inclusion of cost of services (facilities) received by them while providing the security services to M/s.NLC - demand of differential tax - Time limitation - HELD THAT - It is not in dispute that the appellant has discharged service tax on the consideration received for providing security services. In addition to the consideration agreed by the parties the appellant has also received certain facilities from M/s.NLC in the nature of rent free accommodation rent free office premises vehicles electricity and water expenses fuel expenses medical treatment expenses expenses for forms and stationery. In the agreement (MoU) the cost of these services are not quantified. The Tribunal has considered the very same issue in C.G.S.T, C.C.E. DEHRADUN VERSUS COMMANDANT CISF UNIT 2019 (2) TMI 1175 - CESTAT NEW DELHI . It was held that when there is no evidence forthcoming from the records that the amount of H.R.A was ever paid to the assessee the department cannot include the notional value of the free accommodation in the gross value so as to subject it to levy of service tax. The issue on limitation was also held in favour of assessee. The Tribunal in the case of Central Industrial Security Force Vs CC CCE ST Allahabad (supra) considered the very same issue. The facts of the said case reveal that the expenses for medical services vehicles telephone charges were incurred by the Airport Authority of India to whom CISF was providing security services. The Tribunal held that the such services are in the nature of reimbursable expenses - the demand was set aside. Time limitation - HELD THAT - The Department has alleged suppression of facts with intent to evade payment of service tax. However there is no positive act of suppression established by the department against the appellant for invoking extended period. Appellant being a PSU we are of the view that invocation of extended period is without basis. The Tribunal in the case of CGST CCE Dehradun Vs Commandant CISF Unit had set aside the demand on the ground of limitation also. The demand cannot sustain. The issue is decided in favour of appellant both on merits as well as on limitation.

Summary

The core legal questions considered by the Tribunal were:

1. Whether the value of free or reimbursable services and facilities provided by the service recipient (client) to the service provider (appellant) in the course of rendering security services should be included in the taxable value for service tax under Section 67(1)(ii) of the Finance Act, 1994.

2. Whether the demand for service tax on such additional notional value of free facilities could be sustained for the period 2009-10 to 2012-13 (upto June 2012).

3. Whether the invocation of the extended period of limitation for raising the demand was legally justified, given the nature of the parties involved and the facts of the case.

Issue-wise Detailed Analysis

Issue 1: Inclusion of Notional Value of Free/Reimbursable Facilities in Taxable Value

The relevant legal framework is Section 67(1)(ii) of the Finance Act, 1994, which mandates that where service tax is chargeable on any taxable service with reference to its value, and the provision of service is for a consideration not wholly or partly consisting of money, the value shall be such amount in money as, with service tax charged, is equivalent to the consideration.

The Department contended that the appellant received additional consideration in the form of rent-free office accommodation, electricity, water expenses, vehicles, fuel, medical treatment, and stationery from the client, M/s. NLC, which were not included in the taxable value. The Department quantified these facilities on a notional basis and issued a show cause notice demanding service tax on Rs. 9,40,58,092/- for the relevant period.

The appellant argued that these facilities were provided as per the terms of the Memorandum of Understanding (MoU) entered into under the Central Industrial Security Force Act, 1968 (CISF Act), which mandates deployment of CISF personnel to protect public sector undertakings. The MoU specified that the client would provide infrastructure, accommodation, medical, transport, communication, and other facilities necessary for deployment, but did not quantify these or treat them as additional consideration. The appellant maintained that these were conditions precedent for providing the service and not separate consideration.

The Tribunal relied on several precedents including the Supreme Court decision in Commissioner of Service Tax Vs Bhayana Builders (P) Ltd., which held that the value of free supplies is not to be included in taxable value. Further, the Tribunal cited multiple CESTAT decisions (CGST, CCE Dehradun Vs Commandant CISF Unit; CISF Vs CCE Allahabad; Bharat Coking Coal Ltd. Vs CCE; CISF Vs CST Pune; Sr. Commandant CISF Vs CC & CCE Bhopal) which consistently held that reimbursable expenses or facilities provided by the client to CISF or similar service providers do not form part of the gross value for service tax purposes.

The Tribunal noted that the MoU only stipulated provision of facilities necessary for deployment but did not create any separate liability or additional consideration. The appellant had discharged service tax on the monetary consideration invoiced. The Department's approach of adopting notional values without evidence of actual payment or receipt of additional consideration was rejected.

Thus, the Tribunal concluded that the value of such free or reimbursable services/facilities cannot be included in the taxable value under Section 67(1)(ii) and the demand on this ground cannot be sustained.

Issue 2: Validity of Demand for the Period 2009-10 to 2012-13 (upto June 2012)

The Department issued the show cause notice in 2014, raising demand for the period from 2009-10 to June 2012, invoking extended period provisions on the ground of suppression of facts.

The appellant contended that both parties are public sector undertakings and there was no suppression or intent to evade tax. The details of the services and facilities were available in the accounts and MoU. The issue was interpretational and subject to ongoing litigation, thus the extended period invocation was unjustified.

The Tribunal examined the limitation aspect in the light of the facts and precedents. The Tribunal observed that there was no positive act of suppression or misrepresentation by the appellant. The demand was based on a notional presumption rather than concrete evidence. The Tribunal referred to the CGST, CCE Dehradun Vs Commandant CISF Unit decision which held that in the absence of mens rea or suppression, the extended period cannot be invoked against government undertakings.

The Tribunal further noted that the period in question was prior to 1.7.2012, and the issue was covered by favorable precedents for the appellant.

Hence, the Tribunal held the demand for the extended period was not sustainable.

Issue 3: Applicability of the CISF Act and MoU Terms to the Taxability Question

The appellant emphasized that the security services were provided under the statutory framework of the CISF Act, 1968, which mandates deployment of CISF personnel to public sector undertakings upon request. The MoU between the parties detailed the terms of deployment, including the provision of infrastructure and facilities by the client, which were necessary for the service but not additional consideration.

The Tribunal accepted the appellant's argument that the MoU terms reflected the statutory and operational framework rather than a commercial transaction involving additional consideration. The facilities provided were integral to the service deployment and not separate taxable supplies.

This interpretation was consistent with the principle that only consideration received or receivable for the service rendered forms part of the taxable value, and free or reimbursed facilities provided by the client do not constitute additional consideration.

Significant Holdings

"The Tribunal has considered the very same issue in CGST, CCE Dehradun Vs Commandant CISF Unit (supra). It was held that when there is no evidence forthcoming from the records that the amount of H.R.A was ever paid to the assessee, the department cannot include the notional value of the free accommodation in the gross value so as to subject it to levy of service tax."

"There cannot be a single good reason for either of the two to have an intent to evade the tax, there is otherwise no evidence by the Department to prove any positive act on part of the service provider which may amount as mens rea on the part of the provider to evade tax."

"The issue is decided in favour of appellant both on merits as well as on limitation."

The core principles established are:

• Free or reimbursable services/facilities provided by the service recipient to the service provider, without any additional consideration, cannot be included in the taxable value under Section 67(1)(ii) of the Finance Act, 1994.
• Where the service provider and service recipient are public sector undertakings, and no positive act of suppression or intent to evade tax is established, invocation of the extended period of limitation is not justified.
• Statutory and contractual provisions mandating provision of certain facilities to the service provider as conditions for service deployment do not amount to additional taxable consideration.

On the facts, the Tribunal set aside the demand for service tax on the notional value of free facilities for the period 2009-10 to 2012-13 (upto June 2012) and held that the extended period invocation was without basis. The appeal was allowed with consequential reliefs.