2014 (3) TMI 566 - HC - Service Tax

Inclusion of Re-imbursement of expenses in the value of taxable services for the purposes of levy of service tax - Validity of Rule 5 (1) of the Service Tax (Determination of Value) Rules - Held that - Court hereby directs the respondents not to proceed further in terms of the impugned show cause notices or draw or enforce any demand against the petitioner. The respondents would, however, be at liberty to initiate proceedings in the event of and having regard to the final orders of the Supreme Court in the pending appeal - Decided in favour of assessee.

Summary

Issues involved:
Challenge to show cause notices issued by Service Tax Department under Section 67 of the Finance Act, 1994 read with Rule 5 (1) of the Service Tax (Determination of Value) Rules; Validity of Rule 5 (1) examined in light of a recent decision; Interpretation of Board's Circular No.119/13/2009-S.T. regarding reimbursement expenses.

Analysis:

1. Challenge to show cause notices: The petitioner challenged various show cause notices issued by the Service Tax Department under Section 67 of the Finance Act, 1994 read with Rule 5 (1) of the Service Tax (Determination of Value) Rules. The petitioner argued that the amounts in question were only reimbursement of expenses and should not be subjected to service tax.

2. Validity of Rule 5 (1): The Court referred to a recent decision in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. v. Union of India, 2013 (29) STR 9, where the validity of Rule 5 (1) was examined. The Court held that the Rule was ultra vires and unenforceable. It was noted that this position was not disputed by the counsel for the Service Tax Department, who informed the Court that the judgment was under appeal in the Supreme Court.

3. Interpretation of Board's Circular: The petitioner relied on Board's Circular No.119/13/2009-S.T. dated 21.12.2009, which directed the relevant authorities not to raise demands on reimbursement. This circular was considered by the Court in conjunction with the invalidity of Rule 5 (1) and the pending appeal in the Supreme Court.

4. Court's Decision: Considering the above circumstances and the pending appeal in the Supreme Court, the Court directed the respondents not to proceed further with the show cause notices or enforce any demand against the petitioner. However, the respondents were given the liberty to initiate proceedings based on the final orders of the Supreme Court in the pending appeal. The writ petitions were disposed of accordingly.

In conclusion, the judgment addressed the challenge to show cause notices, examined the validity of Rule 5 (1) in light of a previous decision, and considered the interpretation of the Board's Circular regarding reimbursement expenses. The Court provided a directive to the respondents based on the invalidity of the rule and the pending appeal in the Supreme Court, ensuring a balanced approach to the legal issues at hand.