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TMI Blog2022 (9) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... tics Private Limited (SLP) pointed out that the dispute pertains to denial of exclusion from assessable value as reimbursable expenditure of electricity cost, for the period after 14.05.2015. She pointed out that in terms of the agreement between the SLP and Titan Industries Limited (TIL) dated 31.05.2012, the SLP were engaged in providing certain services to TIL in the premises located at 21 & 22 Sipcot Industrial Complex Phase-I, Hosur-635126. In terms of the contract, certain amounts were paid by TIL to the SLP on the basis of actuals subject to certain limits. These amounts included man power cost, additional man power cost, management fee, performance pay, reimbursement and holiday working. Apart from that certain amortization charges were also paid by TIL. The SLP sought to exclude from the assessable value the electricity charges received by them from M/s TIL and claimed the same as reimbursements. The Commissioner (Appeals) has denied the benefit partially on the ground that the law regarding reimbursements was amended w.e.f. 14.05.2015. The Commissioner (Appeals) has allowed the benefit for the period prior to 14.05.2015. Learned Counsel vehemently argued that the electric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was further argued by learned Authorized Representative that contract between SLP and TIL does not clearly specify regarding reimbursement of octroi charges in the work order. It has been argued that it was open to TIL to refuse to pay to SLP for the octroi expenditure done by SLP. It has been further argued that a certain amount has been charged over and above the octroi charges as service fee for the purpose of payment of octroi. While SLP have paid service tax on the said amount collected over and above the said octroi charges, the said action of collecting an amount of over and above the octroi charges, makes the said octroi charges includible in the assessable value in terms of Rule 5(2)(vii) of Service Tax (Determination of Value) Rules, 2006. 4. Learned counsel for the SLP pointed out that the appeal filed by the Revenue in respect of Octroi charges is not maintainable for the reason that the octroi charged were paid by M/s SLP on behalf of their clients. She pointed out that the octroi charges are in nature of tax levied by the State Government on the entry or exit of the goods. She argued that Constitution of India provides that tax can only be collected by mandate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of Rolex Logistics Private Limited 2008 (9) TMI 123. She pointed out that the payment made by M/s SLP has been separately indicated in the invoices issued by them to the recipient of service. She also pointed out that they recover from the recipient of service only such amount as has been paid by them to the third party. 4.1 In so far as reimbursement of electricity charges are concerned, she submitted that as per agreement, M/s SLP has also agreed to bear certain expenditure on behalf of TIL which shall be reimbursed by TIL on actual basis as pure agent of TIL. She pointed out that one such expanse was electricity charges for running the unit of TIL which are payable by TIL and have been paid by M/s SLP on behalf of TIL. She pointed out that Section 67 determines the valuation of taxable service for charging service tax. She pointed out that Explanation-(a) of Section 67 defines consideration and she stated that consideration includes "any reimbursable expenditure or cost incurred by the service provider and charged in the course of providing or agreeing to provide a taxable service, except in such circumstances and subject to conditions as may be prescribed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract, reimbursement of the expenses incurred towards security services, staff welfare, fuel, electricity, water, communication, housekeeping, pest control and administration, etc, are to be made by the service receiver viz. M/s Titan Industries Ltd., to the appellant. The appellant was issuing separate invoices for the reimbursement of expenses and paying service tax on the entire amount recovered as reimbursement, excluding the amount of reimbursement on electricity charges contending that the said expenditure had incurred by them in the capacity of pure agent. 8.1 As per Explanation I of Rule 5(2) of the Valuation Rules, "pure agent" means a person who (a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service; (b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service; (c) does not use such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services. Thus, to qualify as 'pure agent", one has to satisfy all the above four c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by the evidences they have relied upon. When the appellant have to bear the cost of electricity charges over and above the maximum limit specified under the terms of agreement, it cannot be said that electricity charges are not part of cost of providing the service and it stand established that such electricity was used by them and thereby they hold title to it. Since the appellant was not receiving the actual amount incurred towards electricity charges, the entire impugned transaction would fail to qualify as that of a pure agent as most of the conditions prescribed for being a pure agent would not get satisfied whereby the exclusion of such expenditure sought by them in terms of Rule 5(2) becomes inadmissible. Needless to say, the onus to prove the admissibility of exclusion of such expenditure from the taxable value of service purely lies on the appellant as such exclusion was allowed as an exception in certain circumstances, which I find that they failed to do. Further, it is observed that as per Work Order, there is provision for payment of service tax and TDS as applicable for items specified in sub-clause (a) to (g) of Clause (3) which also included 'Reimbursement&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovider, 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 purposes 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, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value. (c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and (book adjustment, and any amount credited or debited, as the case may be, to any account, whether called "Suspens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso specifically mentions that the service tax will be 12% of the "value of taxable services". Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon. 26. In this hue, the expression "such" occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing "such" taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as that amount is not calculated for providing such "taxable service". That according to us is the plain meaning which is to be attached to Section 67 (unamended i.e. prior to 1-5-2006) or after its amendment, with effect from 1-5-2006. 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. We, therefore, find that the High Court was right in interpreting Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the course of providing or agreeing to provide a taxable service. Thus, only with effect from 14-5-2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the learned counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in CIT v. Vatika Township (P) Ltd 20 wherein it was observed as under: (SCC pp. paras 27-29) "27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consist of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we shall refer to few judgments containing this dicta, a little later." (emphasis in original) In terms of the above decision of the Hon'ble Apex Court, it was clearly held that there was no authority in law to include the reimbursable expenditures in the assessable value. The said decision also holds that w.e.f. 14.05.2015 by amendment of Section 67 wherein the definition of the term 'Consideration' was amended, reimbursable expenditure or cost would also form part of the value of taxable services. It is seen that prior to 14.05.2015, the only authority to include any reimbursable expenditure was arising out of Rule 5 of the Service Tax (Determination of Value) Rules, 2006. The Hon'ble Apex Court in the decision of Intercontinental Consultants and Technocrats Private Limited (supra) has held that Rule 5 of Service Tax (Determination of Value) Rules, 2006, went much beyond the mandate of Section 67. In these circumstances, and also considering the observation of Commissioner (Appeals) in the impugned order reproduced in para 5 above, we do not find any merit in the appeal filed by Revenue for inclusion of value of electricity charges into the assessable value by invoking Rule 5(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of pure agent or not. 9.1 As discussed in para 8.1 above, to qualify as 'pure agent', one has to satisfy all the four conditions specified under Explanation I of Rule 5(2) of the Valuation Rules. The first condition is that the person should have entered into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service. In this regard, I agree with the contention raised by the appellant that the intention of the term 'contractual agreement' is to be understood holistically to mean that there is an arrangement between the parties whereby the appellant would incur costs for the customer and the customer would reimburse the same. It cannot be insisted that such an agreement has to be in a written form. Even an oral mutual consent between the two parties would suffice to cover as a 'contractual agreement' in the given context. In the present case, the invoice Issued by the appellant to their customers for reimbursement of charges paid towards Octroi by them by specifically mentioning the same amply indicates the presence of such a 'contractual agreement between them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made to a statutory authority under a legal obligation and hence there does not arise any question of use of service or goods by the appellant and the payment in this regard was made by the appellant on behalf of the owner/importer of goods. Therefore, the third condition stand satisfied. Coming to the fourth and last condition that the person receives only the actual amount incurred to procure such goods or services, though the said levy was not towards any procurement of service or goods for the service receiver it is not in dispute that the reimbursement of Octroi recovered/received by the appellant from their customer was exactly the same amount they had paid as Octroi to the Municipal Authority on behalf of their customer. The fact of appellant charging some service charge in this regard does not Ipso facto alters or affects the compliance of the above condition as the amount of reimbursement of Octroi and the service charge are separately mentioned in the Invoice issued by the appellant to their customer and it is not the case that they were recovering Octroi charges in excess of what they have actually paid. Therefore, the fourth condition also stand satisfied by the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e presence of a 'contractual agreement between them to incur the said expenditure for the customer by the appellant and that is sufficient to qualify as the authorisation from the recipient of service to the appellant to make payment on their behalf. (v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party; The payment in the case being towards levy of Octroi, the recipient of service was well aware of the fact that it was a statutory levy paid to Municipal Authority, the third party. (vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated In the Invoice issued by the service provider to the recipient of service; The payment made by the appellant on behalf of the recipient of service viz. their customer has been separately clearly indicated in the invoice issued by the appellant to their customer and there is no dispute to this fact. (vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and The reimbursement of Octroi recovered/received ..... X X X X Extracts X X X X X X X X Extracts X X X X
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