2025 (7) TMI 280 - AT - Service Tax

Calculation of service tax - inclusion of the cost of facilities provided and expenditure incurred by SSP in taxable value - invocation of Section 67(1)(ii) of the Finance Act 1994 and Rule 3(3) of Service Tax (Determination of Value) Rules 2006 - 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 said consideration for security services provided by the Appellant they have also received certain services (facilities) from SSP in the nature of rent-free accommodation rent free office premises electricity/water charges supply of vehicles supply of fuel provision of medical treatment supply of forms and stationery. In the agreement (MOU) between the Appellant and SSP the cost of these services are not quantified. The Department has raised demand adopting notional value for such services. The Tribunal has considered the very same issue in CGST CCE Dehradun Vs. 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 of limitation was also held in favour of assesse. Time limitation - HELD THAT - There is no positive act of suppression established by the department against the appellant for invoking extended period. Appellant being a Central Para Military Force 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 2019 (2) TMI 1175 - CESTAT NEW DELHI 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 - Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the service tax demand raised on the Appellant by including the value of facilities and reimbursements provided by the service recipient (SSP) in the taxable value is justified under the Finance Act, 1994 and the Service Tax Rules, 1994;

(b) Whether the value of non-monetary consideration such as rent-free accommodation, medical facilities, transportation, office premises, and other amenities provided by SSP to the Appellant forms part of the taxable value under Section 67(1)(ii) of the Finance Act, 1994;

(c) Whether the payments made by SSP to the Appellant are consideration for taxable services or statutory fees, and if the latter, whether they are liable to service tax;

(d) Whether reimbursements of expenses received by the Appellant during the impugned period are includible in the taxable value for service tax purposes;

(e) Whether the Appellant, being a statutory entity created under the CISF Act and not engaged in business, falls within the ambit of "security agency service" liable to service tax;

(f) Whether Rule 3 of the Service Tax (Determination of Value) Rules, 2006 can be invoked to determine the taxable value in the present facts;

(g) Whether the extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994 is invocable against the Appellant for alleged suppression of facts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Inclusion of non-monetary facilities and reimbursements in taxable value

The legal framework involves Section 67 of the Finance Act, 1994, which defines the value of taxable service as the gross amount charged for the service or, where consideration is not wholly in money, the equivalent monetary value including service tax. Rule 3 of the Service Tax (Determination of Value) Rules, 2006, further prescribes the manner of valuation.

The Appellant argued that the security services rendered were by way of deputation of personnel under the CISF Act and MOU with SSP, and the non-monetary amenities provided by SSP (such as free accommodation, medical facilities, vehicles, electricity, water, stationery) were not consideration flowing to the Appellant but were statutory or contractual obligations of SSP to enable deployment of personnel. Therefore, these amenities do not form part of taxable value under Section 67.

The Appellant relied on precedents including Punjab Ex-Service Men Corporation, Intercontinental Consultants & Technocrats Pvt. Ltd., and Apitco Ltd., which hold that only the amount charged by the service provider as consideration for taxable service forms the value, and reimbursements or statutory fees do not constitute consideration. The Appellant contended that costs incurred by SSP for amenities benefit SSP and not the Appellant, thus cannot be consideration.

The Department contended that under the MOU, the Appellant received additional services from SSP beyond the invoiced amounts and that, as per Section 67(1)(ii), such additional consideration must be included in the taxable value. The Department invoked Rule 3(3) of the Valuation Rules to adopt a notional value for these facilities and raised demand accordingly.

The Tribunal examined the issue in light of the consistent judicial pronouncements by coordinate Benches, including CGST, CCE Dehradun vs. Commandant CISF Unit, CISF vs. CCE Allahabad, Bharat Coking Coal Ltd vs. Commissioner, CISF vs. Commissioner Pune, Sr. Commandant CISF (BHEL Unit) vs. CCE Bhopal, and others. These decisions uniformly held that non-monetary facilities provided free of cost by the service recipient to enable the service provider's personnel to function do not constitute consideration and are not includible in taxable value.

The Tribunal noted that the Appellant had discharged service tax on the monetary consideration received for salary, arms, clothing, and pension (till November 2010), and the disputed amounts related to pension post-December 2010, miscellaneous expenses, medical facilities, transportation, and accommodation, which were not paid to the Appellant but were statutory or contractual provisions by SSP. The Tribunal found no evidence of payment or receipt of these amounts by the Appellant.

Accordingly, the Tribunal held that these non-monetary facilities and reimbursements do not form part of the taxable value under Section 67(1)(ii) and Rule 3(3) cannot be invoked to include them notionally.

Issue (c): Nature of payments as statutory fees or consideration

The Appellant contended that the payments received from SSP are statutory fees under the CISF Act and Rules, not consideration for taxable service. The CISF personnel are deputed under statutory provisions with the service recipient providing infrastructure and amenities as per the MOU and CISF Rules. The Appellant relied on the decision in LSE Securities Ltd. vs. CCE, which held that statutory charges and levies are not includible in assessable value for service tax.

The Department argued that the Appellant received consideration over and above statutory fees in the form of additional services and facilities, which must be included.

The Tribunal accepted the Appellant's submission that no monetary or non-monetary consideration flowed to the Appellant for the disputed facilities and that payments made were statutory in nature. Hence, no additional consideration existed to attract service tax.

Issue (d): Reimbursements of expenses

The Appellant asserted that reimbursements received for medical expenses, transportation, stationery, and miscellaneous expenses are not consideration but mere reimbursements and thus not taxable. Reliance was placed on the Delhi High Court judgment in Intercontinental Consultants and Technocrats Pvt. Ltd. and the principle that reimbursements cannot be included in taxable value.

The Department maintained that reimbursements must be included under Section 67(1)(ii).

The Tribunal, following the binding precedents, held that reimbursements are excluded from taxable value and that the demand on such amounts must be dropped.

Issue (e): Whether the Appellant is a taxable "security agency"

The Appellant argued that being a statutory entity under the CISF Act, not engaged in business or commercial activity, it does not fall within the definition of "security agency" under Section 65(105)(w) of the Finance Act, 1994. The Appellant emphasized that the services rendered are statutory functions and not taxable services. Reliance was placed on Departmental Circular No. 89/7/2006-ST and the decision in Security Guards Board vs. CCE.

The Department relied on the Circular dated 19.08.2008 to contend that the Appellant is liable to service tax.

The Tribunal observed that the issue of statutory functions not constituting taxable service is well settled and that the Appellant's activities under the CISF Act are statutory functions. Thus, the Appellant is not liable to pay service tax as a security agency engaged in business.

Issue (f): Invoking Rule 3 of the Valuation Rules

The Appellant submitted that Rule 3 of the Service Tax (Determination of Value) Rules, 2006 applies only where the value is not ascertainable (Section 67(1)(iii)) and not where consideration is partly or wholly non-monetary (Section 67(1)(ii)). The Appellant contended that since the value of the services is ascertainable, Rule 3 cannot be invoked to adopt notional values.

The Tribunal agreed with the Appellant's interpretation, holding that Rule 3 cannot be invoked in the present facts to include notional values of free facilities in the taxable value.

Issue (g): Invocation of extended period of limitation

The Department invoked the extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994, alleging suppression of facts by the Appellant.

The Appellant denied any suppression or intent to evade tax, asserting bona fide belief based on earlier Circulars exempting them from service tax till 31.03.2009. The Appellant relied on Supreme Court decisions including Anand Nishikawa Co Ltd, Padmini Products Ltd, Chemphar Drugs & Liniments, Gopal Zarda Udyog, Lubri-Chem Industries Ltd, and Pushpam Pharmaceuticals Company, which require positive act of suppression for extended limitation to apply.

The Tribunal found no evidence of positive suppression or mens rea on part of the Appellant. It noted that the issue involved interpretation of law and that the Appellant is a Central Government agency not engaged in commercial activities or gaining pecuniary benefits. Following the decision in CGST, CCE Dehradun vs. Commandant CISF Unit and other precedents, the Tribunal held that extended period of limitation is not invocable.

3. SIGNIFICANT HOLDINGS

"Consideration received against providing any service, i.e. as per explanation [to] Section 67, is something which include any amount payable for taxable services provided or to be provided. The bare reading makes it clear that in case any amount is payable qua to CISF the accommodation being provided to the security personnels that it shall be the consideration. If it is consideration, then only Rule 3 [of Service Tax (Determination of Value)] Rules will come into picture. But as observed by Commissioner (Appeals) vide the Order under challenge that there is no evidence on the point about any amount either in terms of HRA was ever paid to the respondent/CISF, the question of notional value of the free accommodation provided cannot form part of the gross value which has to be taxed under Section 67 of the Act."

"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. Rather from the above discussion it is apparent the SCN was issued under notional presumption of free accommodation to be the part of consideration which otherwise was not the liability of the service provider in the given circumstances. Hence, to our opinion, there appears no case of any suppression or mis-representation of facts on part of the service provider (CISF). The Department had no occasion to provisio to Section 73 of the Finance Act, 1994 for invoking the extended period of limitation."

Core principles established include:

• Only monetary or non-monetary consideration actually received by the service provider for taxable service forms part of taxable value under Section 67;
• Reimbursements or statutory fees paid by the service recipient to the service provider do not constitute consideration and are excluded from taxable value;
• Non-monetary facilities provided free by the service recipient to enable deployment of security personnel do not constitute consideration and are not taxable;
• Rule 3 of the Valuation Rules applies only where value is not ascertainable and cannot be invoked to adopt notional values where value is ascertainable;
• Statutory entities performing statutory functions without engaging in business are not liable to service tax as security agencies;
• Extended period of limitation requires positive suppression or intent to evade tax, which is absent in cases involving bona fide interpretation of law and statutory entities.

Final determinations:

The Tribunal set aside the impugned order confirming the service tax demand and penalty against the Appellant. It held that the demand on account of inclusion of notional value of free facilities and reimbursements is unsustainable. The Appellant is not liable to pay service tax on such amounts. The extended period of limitation is not invocable due to absence of suppression or intent. The appeal was allowed with consequential relief.