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2018 (2) TMI 945

diture or cost which are incurred by the service provider in the course of providing taxable services are to be treated as consideration and has to be included in the value of taxable services for levy of service tax - sub-rule 1 of Rule 5 of Service Tax (Determination of Value) Rules 2006 - Held that: - The applicability of Rule 5 (1) was considered by the Hon’ble High Court of Delhi in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. [2012 (12) TMI 150 - DELHI HIGH COURT]. The Hon’ble High Court held that the inclusion of costs and expenditures in the gross taxable value by making provision in the Rules is repugnant to Section 66 and 77 of the Finance Act and to that extent is ultra vires. - Demand do not sustain .....

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ppellants are now before the Tribunal. 2. On behalf of Ld. Counsel, Shri S. Muthuvenkataraman submitted that the period involved is from June 2006 to July 2007. The appellant had discharged service tax under Survey and Exploration of Mineral, Oil or Gas service without including freight charges and equipment rental charges. The appellant was under bonafide belief that these are expenditures incurred for providing the taxable service and is not required to be included. The definition of taxable service under Survey and Exploration of Mineral, Oil or Gas service covered only activities in the nature of prospecting, surveying and map making activities. They have entered into a contract withr M/s. Odfjell Well Services Ltd., UAE, from whom they .....

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(29) STR 9 (Delhi) has struck down the said provision [Rule 5 (1)] holding that it is ultra vires, and also held that such costs and expenses need not be included. 3. Ld. AR, Shri K. Veerabhadra Reddy, JC, reiterated the findings in the impugned order. He submitted that all the components of invoices which has been raised on the appellant as form part of gross taxable value of service while discharging service tax. For rendering the main service Survey and Exploration of Mineral, Oil or Gas service, equipments were rented out. These equipments are integral to the service activities and the rental charges paid have to be included in the gross value. The services could not have been provided without the use of the equipments, which makes it c .....

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capable of efficiently performing the Services and capable of providing such Services as detailed in the Contract and is ready, willing and able to perform the Services and provide such Services. Contractor agrees to perform and complete the Services in conformity in all respects with the provisions of the Contract in consideration of the payments to be made by Company to Contractor as provided in the Contract. Except to any extent expressly stated elsewhere in the Contract, the Services are to be furnished on a non-exclusive basis and Company may at any time obtain similar or associated services to the Services from other contractors or suppliers. Company agrees to pay Contractor in consideration of the performance and completion of the S .....

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incurred in the course of providing service has to be included in the value of the taxable services. The Ld. Counsel for the appellants has taken a contention that the equipment rental charges if at all would come only under the Supply of Tangible Goods service and that such services were not taxable during the relevant period. We do not think that such arguments are material for consideration in this appeal, for the reason that the SCN as well as the OIO basis the allegation only under sub-rule 1 of Rule 5 of Service Tax (Determination of Value) Rules 2006. The Rule 5 (1) reads as under:- As per sub-rule (1) to Rule 4 of the Service Tax (Determination of Value) Rules 2006, where any expenditure or costs are incurred by the service provide .....

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service, nothing more and nothing less than the consideration paid as quid pro quo for the service can be brought to charge. Sub-section (4) of Section 67 which enables the determination of the value of the taxable service in such manner as may be prescribed is expressly made subject to the provisions of sub-section (1). The thread which runs through Sections 66, 67 and Section 94, which empowers the Central Government to make rules for carrying out the provisions of Chapter V of the Act is manifest, in the sense that only the service actually provided by the service provider can be valued and assessed to service tax. We are, therefore, undoubtedly of the opinion that Rule 5(1) of the Rules runs counter and is repugnant to Sections 66 and 6 .....

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