TMI Blog2019 (5) TMI 1233X X X X Extracts X X X X X X X X Extracts X X X X ..... The valuation of taxable service for charging service tax could only be the gross amount charged for providing such taxable services which in the present case is the filing of diesel and any other amount cannot be a part of the valuation as it cannot be an amount for such taxable services. The Department cannot go beyond the contract value and arrive at the value of taxable service merely because of the use of the word gross in Section 67 of the Act. The use of the word charged makes it clear that it refers to the amount billed by the service provider to the service recipient and, therefore, unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining value on which service tax is payable as was observed by the Supreme Court in CST, DELHI VERSUS M/S. BHAYANA BUILDER PVT. LTD. [2018 (5) TMI 721 - CESTAT NEW DELHI] . The cost of free supply of goods provided by the service recipients to the service provider is neither an amount charged by the service provider nor can it be regarded as a consideration for the service provided by the service provider. It has no nexus with the taxable services for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uxiliary Service to various parties including M/s Bharti Infratel Limited, M/s Bharti Hexacom Limited and M/s Indus Towers Limited (hereinafter referred to as service recipients). The scope of work to be executed by the appellants in respect of their telecom tower sites includes Operation and Maintenance of base trans-receiver station sites, diesel filling, general site maintenance and electricity bill collection and payment. The appellants were discharging service tax liability on the service charges received from the service recipients for these services. As the appellants were required to fill diesel in their Diesel Generator sets (DG sets), they were not including the value of diesel in the value of its taxable services since they were procuring diesel from the stations authorised by the service recipients and the value of diesel was reimbursed by the service recipients to the appellants on a monthly basis. According to the appellants, since the charge for the diesel was reimbursed by the service recipients it was not a consideration towards any taxable service and, therefore, they were not paying any service tax on such value of diesel. 5. A show cause notice d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets operational for the purpose of providing such service. It is for this reason that the Commissioner observed that the cost of diesel would form part of the gross value of taxable service in terms of section 67 of the Act. 9. A similar Order dated 31 July, 2014 was passed by the Commissioner to the show cause notice dated April 2013 issued to M/s Munshilal Durga Prasad. This order has been assailed in Service Tax Appeal No. 50956 of 2018. The Joint Commissioner also passed an order dated 31 August, 2015 which has been assailed in Service Tax Appeal No. 50956 of 2018. It has been observed that it was impossible for the assessee to perform the job of maintenance of telecom towers without diesel and so, diesel was an essential material for providing the service and, therefore, whatever cost the assessee was incurring on diesel had to form part of the consideration. It was, therefore, held that the value of diesel, even if supplied free of cost, was liable to be included in the value of taxable service. This Order of the Joint Commissioner was upheld by the Commissioner(Appeals) by Order dated 11 January, 2018 by observing that the cost of diesel, even if it was reim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utput services. Diesel filing, is itself a service for which a separate consideration is identified; (v) The impugned Orders rely upon the provision of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 that prescribes that the value of any expense/ cost incurred by a service provider while rendering a taxable service would be included, but the said Rule 5(1) has been struck down by the Supreme Court in Intercontinental Consultants as being ultra vires Section 67 of the Act; and (vi) Any action taken on an object to be repaired, maintained or installed which results in a taxable service would not mean that the object becomes the input. 11. Shri Amresh Jain, learned Authorised Representative has, however supported the impugned Orders and has submitted that they have correctly interpreted Section 67 of the Act. It is therefore, his submission that the Appeals deserve to be dismissed. 12. The submissions of the learned Counsel for the appellants and the learned Authorised Representative for the Department have been considered. 13. In order to appreciate the contentions, it would be appropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the taxable services provided or to be provided; (b) ----- (c) ----- 17. Service (Determination of Value) Rules, 2006 have been framed by the Central Government under Section 94 of the Act. Rule 5(1) is reproduced below: 5(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service. 18. The agreements in the three Appeals are almost similar in nature. The terms of the agreement dated 27 April, 2010 entered into between M/s Bharti Infratel Limited and M/s Ganpati Associates can, therefore, be examined. Clause 2 of the Agreement deals with Appointment, Clause 3 deals with Delivery of Services, while Clause 4 deals with Service Charges and Payment. Clause 2.1 provides that the service provider has been appointed for providing services as detailed in Annexure A. Clause 3.1 provides that the service provider shall at all times deliver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - c) ----- d) ----- e) ----- f) ----- g) ----- h) ----- i) ----- j) ----- k) ----- l) Diesel filling, cleaning of DG sets and keep the record of fuel average and DG hrs. m) Service provider will fill the diesel as per the laid down process. They will ensure that the DG should have the adequate diesel all the time. They will also keep track of site wise diesel consumption and no. of hours DG running through monthly MIS. Diesel to be procured from Bharti authorised filling stations. n) ----- 23. The process for filling diesel has also been provided in the agreement and is as follows: 32 Diesel Filling Process Bharti Technical team shall provide the list of site with the detailed LPH consumptions. Service provider shall fill the diesel at site as per the daily consumptions. Service provider shall update site status to Bharti nominated officials on a daily basis. Service provider shall ensure that there is no shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority must match the LPH MIS report with the petro card statement in case petro card system is running in circle (hour meter reading shall be multiplied with the average hourly consumptions of the DG (to be defined by concerned Bharti technical member, depending on the shared/non shared) to calculate the amount.) 25. Management, Maintenance or Repair Service has been defined to mean any service provided by any person under a contract or an agreement. A perusal of the aforesaid agreement between M/s Bharti Infratel Limited and M/s Ganpati Associates indicates that the scope of work to be performed includes electrical operation and management of BTS sites, diesel filling, general site maintenance and electricity bill collection and payment. In regard to filling of diesel, the fees to be paid to the appellant is ₹ 500/- per site per month for diesel filling at DHQ sites (District Headquarters) and ₹ 750/- per site per month for diesel filling at non DHQ sites. For diesel filling, the appellant has to raise bills after 7 days as per diesel consumption chart and the payment has to be made within 10 days. The agreement further stipulates that the servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount which is not a consideration for provision of service cannot be subjected to service tax. 28. Section 67 of the Act was considered and explained by the Supreme Court in Intercontinental Consultants. 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. A Writ Petition was filed challenging the vires of Rule 5 as being unconstitutional as well as ultra vires the provisions of Section 66 and 67 of the Act. The High Court of Delhi accepted the said contention and declared Rule 5 to be ultra vires the provisions of Section 66 and 67 of the Act. The High Court noted that both the ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mportance. It is in this context that the Supreme Court in paragraph 26 observed 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. In fact, in regard to free supply of diesel and explosives, the Supreme Court specifically observed that they would not warrant inclusion while arriving at the gross amount charged on the service tax to be paid. 29. It will also be useful to refer to the decision of the Supreme Court in Bhayana Builders. Section 67 either prior to its amendment or subsequent to its amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. By using the words for such service provided the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount charged by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined 13. A plain meaning of the expression 'the gross amount charged by the service provider for such service provided or to be provided by him' would lead to the obvious conclusion that the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the 'gross amount' simply, because of the reason that no price is charged by the assessee/service provider from the service recipient in respect of such goods/materials. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive of certain other payments would make it clear that the purpose is to include other modes of payments, in whatever form received; be it through cheque, credit card, deduction from account etc. It is in that hue, the provisions mentions that any form of payment by issue of credit notes or debit notes and book adjustment is also to be included. Therefore, the words 'in any form of payment' are by means of issue of credit notes or debit notes and book adjustment. With the supply of free goods/materials by the service recipient, no case is made out that any credit notes or debit notes were issued or any book adjustments were made. Likewise, the words, 'any amount credited or debited, as the case may be', to any account whether called 'suspense account or by any other name, in the books of accounts of a person liable to pay service tax' would not include the value of the goods supplied free as no amount was credited or debited in any account. In fact, this last portion is related to the debit or credit of the account of an associate enterprise and, therefore, takes care of those amounts which are received by the associated enterprise for the services rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was rendered by the appellants corresponding to the value of diesel. The valuation of taxable service for charging service tax could only be the gross amount charged for providing such taxable services which in the present case is the filing of diesel and any other amount cannot be a part of the valuation as it cannot be an amount for such taxable services. The Department cannot go beyond the contract value and arrive at the value of taxable service merely because of the use of the word gross in Section 67 of the Act. The use of the word charged makes it clear that it refers to the amount billed by the service provider to the service recipient and, therefore, unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining value on which service tax is payable as was observed by the Supreme Court in Bhayana Builders. The cost of free supply of goods provided by the service recipients to the service provider is neither an amount charged by the service provider nor can it be regarded as a consideration for the service provided by the service provider. It has no nexus with the taxable services for which value ..... X X X X Extracts X X X X X X X X Extracts X X X X
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