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2018 (3) TMI 357

nacted in the said manner, as done by Rule 5? - Held that: - The plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 01, 2006) or after its amendment, with effect from, May 01, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67 - High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider ‘for such service’ and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. - The position did not change even in the amended Section 67 which was inserted on May 01, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of subsection (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided .....

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e service tax. The fringe diferences in the nature of services, however, nature of differences, however, has no impact on the final outcome. 2) All the assessees are paying service tax. The services which these assessees are rendering broadly fall in the following four categories: (a) Consulting engineering services. (b) Share transfer agency services. (c) Custom house agent services covered by the head clearing and forwarding agent . (d) The site formation and clearances, excavation and earth moving and demolition services. 3) While rendering the aforesaid services, the assessees are also getting reimbursement in respect of certain activities undertaken by them which according to them is not includable to arrive at gross value charged from their clients. As per Rule 5 of the Service Tax (Determination of Value) Rules, 2006 (hereinafter referred to as the Rules ), the value of the said reimbursable activities is also to be included as part of services provided by these respondents. Writ petitions were filed by the assessees challenging the vires of Rule 5 of the Rules as unconstitutional as well as ultra vires the provisions of Sections 66 and 67 of Chapter V of the Finance Act, 19 .....

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17, 2008 was issued by the Commissioner, Service Tax, Commissionerate vide which the respondent was asked to show cause as to why the service tax should not be recovered by including the amounts of reimbursable which were received by the respondent, pointing out these were to be included while arriving at the gross value as per provisions of Rule 5(1) of the Rules. 6) Rule 5 was brought into existence w.e.f. June 01, 2007. The demand which was made in the show cause notice was covered by the period from October, 2002 to March, 2007. Against this show cause notice, the respondent preferred Writ Petition No. 6370 of 2008 in the High Court of Delhi challenging the vires thereof with three prayers, namely: (i) for quashing Rule 5 in its entirety of the Service Tax (Determination of Value) Rules, 2006 to the extent it includes the reimbursement of expenses in the value of taxable service for the purpose of charging service tax; and (ii) for declaring the rule to be unconstitutional and ultra vires Sections 66 and 67 of the Finance Act, 1994; and (iii) for quashing the impugned show-cause notice-cum-demand dated 17.03.2008 holding that it is illegal, arbitrary, without jurisdiction and u .....

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s only the actual amount incurred to procure such goods or services. Explanation 2 : For the removal of doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice. Illustration 1 : X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X including charges for Television advertisement and paid service tax on the total consideration billed. In such a case, consideration for the service provided is what X pays to Y. Y does not act as an agent behalf of X when obtaining the television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X. Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his services as an estate agent. Illustration 2 : In the course of providing a taxable service, a service provider incurs costs such as traveling expenses, postage, telephone, etc., and may indicate these ite .....

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olve period prior to the aforesaid amendment as well as post amendment period, it would apt to take note of both unamended and amended provisions. Unamended Section 67 was in the following form: 67. Valuation of taxable services for charging service tax. For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such provided or to be provided by him. Explanation 1. For the removal of doubts, it is hereby declared that the value of a taxable service, as the case may be, includes, (a) the aggregate of commission or brokerage charges by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock broker to any sub broker. (b) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit; (c)the amount of premium charged by the insurer from the policy holder; (d) the commission received by the air travel agent from the airline; (e) the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary .....

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a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as ay be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation: For the purpose of this section, (a) consideration includes any amount that is payable for the taxable services provided or to be provided; (b) money includes any currency, cheque, promissory note, letter of credit, draft, pay order, travelers cheque, mo .....

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nd are included in the bill. No doubt, double taxation was permissible in law but it could only be done if it was categorically provided for and intended; and could not be enforced by implication as held in Jain Brothers v. Union of India (1970) 77 ITR 107. The High Court has also referred to many judgments of this Court for the proposition that Rules cannot be over-ride or over-reach the provisions of the main enactment (Central Bank of India & Ors. v. Workmen, etc., (1960) 1 SCR 200; Babaji Kondaji Garad v. Nasik Merchants Co-operative Bank Ltd., (1984) 2 SCC 50; State of U.P. & Ors. v. Babu Ram Upadhya, (1961) 2 SCR 679; CIT v. S. Chenniappa Mudaliar, (1969) 74 ITR 41; Bimal Chandra Banerjee v. State of M.P. & Ors., (1971) 81 ITR 105 and CIT, Andhra Pradesh v. Taj Mahal Hotel, (1971) 82 ITR 44). The High Court also referred to the judgment of Queens Bench of England in the case of Commissioner of Customs and Excise v. Cure and Deeley Ltd. (1961) 3 WLR 788 (QB). 11) Mr. K. Radhakrishnan, learned senior counsel argued for the appellant, ably assisted by Ms. Nisha Bagchi, advocate who also made significant contribution by arguing some of the nuances of the issue involve .....

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gross amount charged. 13) In the aid of this submission, the learned counsel sought to take help from principle laid down in excise law and submitted that it is held by this Court in Union of India & Ors. v. Bengal Shrachi Housing Development Limited & Anr. (2018) 1 SCC 311 that same principles as applicable in excise law are applicable while examining service tax matters. Reliance was placed on paragraph 22 of the said judgment to support this proposition. However, we may point out at this stage itself that the context in which the observations were made were entirely different. The issue was as to whether service tax, which is an indirect tax, can be passed on by the service provider to the recepient of the service and, in this hue, the matter was discussed, as can be seen from the combined reading of paragraphs 21 and 22 which are to the following effect: 21. It is thus clear that the judgments of this Court which referred to service tax being an indirect tax have reference only to service tax being an indirect tax in economic theory and not constitutional law. The fact that service tax may not, in given circumstances, be passed on by the service provider to the recipien .....

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ld Section 4(a) clearly indicates that a conceptual value forms the basis of the levy, and that the actual wholesale price charged by the particular assessee cannot be the basis of the excise levy. It is said that the criterion adopted in clause (a) succeeds in producing uniform taxation, whether the assessees are manufacturers who sell their goods in wholesale, semi-wholesale or in retail, whether they have a vast selling and marketing network or have none, whether they sell at depots and branches or sell at the factory gate, and whether they load the ex-factory price with post-manufacturing expenses and profits or do not do so. Because the value of the article rests on a conceptual base, it is urged, the result of the assessment under Section 4(a) cannot be different from the result of an assessment under Section 4(b). The contention is that the principle of uniformity of taxation requires the exclusion of post-manufacturing expenses and profits, a factor which would vary from one manufacturer to another. It is pointed out that such exclusion is necessary to create a direct and immediate nexus between the levy and the manufacturing activity, and to bring about a uniformity in the .....

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arties in support of their respective contentions cover a wide area, and several questions of a fundamental nature have been raised. We consider it necessary to deal with them because they enter into and determine the conclusions reached by us. 12. We think it appropriate that at the very beginning we should briefly indicate the concept of a duty of excise. Both Entry 45 of List I of the Seventh Schedule to the Government of India Act, 1935, under which the original Central Excises and Salt Act was enacted, and Entry 84 of List I of the Seventh Schedule to the Constitution under which the Amendment Act of 1973 was enacted, refer to Duties of excise on... goods manufactured or produced in India . A duty of excise, according to the Federal Court in The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 [AIR 1939 FC 1, 6 : 1939 FCR 18] is a duty ordinarily levied on the manufacturer or producer in respect of the manufacture or production of the commodity taxed. A distinction was drawn between the nature of the tax and the point at which it was collected, and Gwyer, C.J. observed that theoretically . . .there can be no reason in theory why an excise dut .....

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ince of Madras [1945 FCR 179 : AIR 1945 FC 98] , the Privy Council referred to both Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 [AIR 1939 FC 1, 6 : 1939 FCR 18] and Province of Madras v. Boddu Paidanna and Sons [1942 FCR 90, 101 : AIR 1942 FC 33] and affirmed that when excise was levied on a manufacturer at the point of the first sale by him that may be because the taxation authority imposing a duty of excise finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale. But that method of collecting the tax is an accident of administration; it is not of the essence of the duty of excise, which is attracted by the manufacture itself. This Court had occasion to consider a similar question in R.C. Jall v. Union of India [AIR 1962 SC 1281 : 1962 Supp (3) SCR 436, 451] . In that case, the Central Government was authorised by an Ordinance to levy and collect as a cess on coal and coke despatched from collieries in British India a duty of excise at a specified rate. Rule 3 made under the Ordinance empowered the Government to impose a duty of excise on c .....

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cter, a charging provision as well as a provision defining the measure of the charge. xxx xxx xxx 35. We have examined the principles of an excise levy and have considered the statutory construction of the Act, before and after its amendment, in view of the three propositions formulated, on behalf of the assessees, as principles constituting the essential characteristics of a duty of excise. It is apparent that the first proposition, that excise is a tax on the manufacture or production of goods, and not on anything else, is indisputable and is supported by a catena of cases beginning with The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 [AIR 1939 FC 1, 6 : 1939 FCR 18] . As regards the second proposition. that uniformity of incidence is a basic characteristic of excise, we are inclined to think that the accuracy of the proposition depends on the level at which the statute rests it. We shall discuss that presently. As to the third proposition, that the exclusion of post-manufacturing expenses and post-manufacturing profit is necessarily involved in the first principle does not inevitably follow. The exclusion of post-manufacturing expenses and .....

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The verity of the three principles propounded by learned counsel for the assessees has been, as indeed it had to be, examined in the context of the Act before and after its amendment. For the case of the assessees is that the amendment has made no material change in the basic scheme of the levy and the provisions for determining the value of the excisable article. 15) It was, thus, argued that the High Court had committed serious error in relying upon Section 66 of the Act (which is a charging section) while interpreting Section 67 of the Act, or for that matter, while examining the validity of Rule 5 of the Rules. The learned counsel also relied upon the dictionary meaning that is given to the word gross amount . At the end, it was submitted that Section 67 which uses the term any amount would include quantum as well as the nature of the amount and, therefore, cost for providing services was rightly included in Rule 5, which was not ultra vires Section 67 of the Act. 16) Mr. J.K. Mittal, Advocate, appeared for M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. He argued with emphasis that the impugned judgment of the High Court was perfectly in tune with legal position an .....

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he gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. Thus, levy on taxable services were not levied at once, but tax was levied at different point of time, tax was levied on difference person and also values in many taxable services was substantially exempted. He demonstrated it from the following table: Sl. No. Taxable Services Sub-clause of 65 (105) Date of levy Tax Rate 1 Consulting Engineer Service (g) 7-7-1997 2 Rent-a-Cab services by a person engage in business of renting of cabs (o) 16-7-1997 * 3 Transport of Passenger by Air by an aircraft operator (a) International (b) Domestic (zzzo) 1-5-2006 1-7-2010 ** 4 Renting of immovable property (zzzz) 1-7-2007 5 Restaurant services (zzzzy) 1-5-2011 *** 6 Accommodation services by Hotel (zzzzw) 1-5-2011 **** 7 Telephone Services/ Telecommunication services by Telegraph Authority (b), (zzzx) 1-7-1994, 1-6-2007 Notes : * Service Tax was leviable only on 40% of value, 60% value was exempted. ** Service Tax was leviable only on 40% of value, 60% value was exempted, but prior to 01-04-2012, tax was only on 10% of value of tickets. .....

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ecepient. These expenses were not included for the purpose of valuation, while paying the service tax. Thus, the question for determination which is posed in Civil Appeal No. 2013 of 2014, answer to that would govern the outcome of the other appeals as well. Still, for the sake of completeness, we may give a brief resume of all these cases. A. Consulting Engineering Services - Assessee were providing consulting services to M/s. NHAI for highway projects. They were paying Service Tax on remuneration only instead of the gross value charged from the client. Sl. No. Civil Appeal details Facts Reimbursable claimed as not includible 1. 2013/2014 UOI v. Intercontinental Consultants Period: Oct 2002 - March 2007 (prior to coming into effect of impugned Rule 5 on 01.06.2007] Demand:Rs.3,55,80,38/- Assessee filed W.P. No. 6370/2008 directly against Show Cause Notice dated 17.03.2008 resulting in the impugned judgment dated 30.11.2012 Transportation, office rent, office supplies and utilities, testing charges, document printing charges, travelling, lodging, boarding etc. (post 19.04.2006) Transportation, office rent, office supplies, office furniture and equipment, reports and documents print .....

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r the category Clearing & Forwarding Agent Service relation to 1.04.2004- 17.04.2006 and confirmed the remaining demand. Customs Examination Charges, Misc. Expenses, Sundry expenses, strapping and re-strapping charges, documentation charges. 4. 8056/2015 CST v. Suraj Forwarders Not Available 5. T.P.(C) No. 10431045/2017 UOI v. Sri Chidambaram & Ors. A Transfer Petition for transferring W.P. Nos. 20832, 14521 and 20590 of 2016 pending before Hon ble High Court at Madras. SCNs raised demands for ₹ 37.13 lacs and ₹ 53.30 lacs which were dropped by the OI- O. However on appeals the O-I-O was set aside, hence W.P s were filed. CFS charges, steamer agent charges, delivery order charges, Airport/Customs charges [page 25- 26/para C] Airline/steamer charges, storage and handling charges, packing charges, transport charges, fumigation charges, insurance survey charges, original certificate charges [pages 62-62] Charges paid to: Steamer agent, Custom Freight Station, Airport Authority of India and Transporters [page 106-107] 6. 7688/2014 CST v. Shree Gayatri Clearing Agency Period: 01.10.2003 to 31.03.2008 [pre and post coming into effect of impugned Rule 5 on 01.06.2007] .....

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ulf Oil Period: October 2008 to November 2008 Demand: ₹ 50,54,746/- Value of explosives and diesel oil supplied free of cost by service recipient. 6. 5453/2016 CCE & ST v. AMR India Period: Mar 08 to Mar 2012 Demand: ₹ 57,74,30,683/- Value of explosives and diesel oil supplied free of cost 7. 10223- 10224/2017 CCE & ST v. Mehrotra Buildcon Period: Apr 09 to Jan 10 & February 2010 to September 2010 Demand:Rs.21,48,835/- + ₹ 18,06,655/- Value of diesel oil supplied free of cost 8. 5444/2017 CCE & ST v. Mehrotra Buildcon Not available Value of diesel oil supplied free of cost E. Sl. No. Civil Appeal details Facts Reimbursable claimed as not includible 1. 10626-10627/2017 Period:Apr 04 to Mar 06 [prior to coming into effect of impugned Rule 5 on 01.06.2007] Demand:Rs.24,70,790/- SCN dated 22.10.2008 Non-payment of Service Tax on the amount received as reimbursement by way of debit notes in addition to amount charged through invoices for providing Event Management Service , Section 65(40) and Section 65(90)(zu) [page 83] Hiring of venue, merchandise, artists, travel, courier, food and beverages, administrative expenses, [page 76 @78] 21) Undoubtedly, Ru .....

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the service provider for such service and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25) This position did not change even in the amended Section 67 which was inserted on May 01, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of subsection (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider. 26) It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner: Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the byelaw, if not in conformity with the statute in order to give effect to the statutory provision the Rule or bye-law has to be ignored. The statutory provision ahs precedence and must be compl .....

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found in the various principles of interpretation of statutes . Vis-à-vis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof. 28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1] , a retrospective legislation is contrary to the general principle that le .....

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