2014 (11) TMI 870 - HC - Service Tax

Valuation - inclusion of value of the HSD supplied by the service recipient - Extended period of limitation - Challenge to the Show Cause Notice - Invocation of Rule 5(1) of the Service Tax (Determination of Value) Rules 2006 - Provision has been declared ultra vires by the Division Bench of the Delhi High Court in case of Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India reported in 2012 (12) TMI 150 - DELHI HIGH COURT - Held that - Value of the diesel supplied free of cost by the service recipient cannot constitute taxable event, the authorities cannot take a contrary stand by placing reliance upon the provision which has been declared ultra vires. This Court, therefore, has no hesitation to hold that the extended period invoked by the authority on the plea of suppression of fact is illegal and renders the same to be invalid. It is in dispute that one of the period covered in the impugned show cause notice is apparently within the normal period of limitation provided under Section 73(1) of the said Act, even if, this Court accept that such period can be segregated from the rest of the periods for which the extended period is invoked, the impugned show cause notice cannot be validated having based upon the inclusion of the value of HSD supplied free of cost by the service recipient. Furthermore, the foundation of the impugned notice is laid on Rule 5(1) of the said rules, which is declared ultra vires by the Delhi High Court 2012 (12) TMI 150 - DELHI HIGH COURT - It is found that the value of HSD provided free of cost by the service recipient cannot be brought within the value of the transaction exposed to the charging section and, therefore, the impugned show cause is liable to be quashed and set aside. - Decided in favour of assessee.

Issues Involved:
1. Validity of the Show Cause Notice dated 21st March 2013.
2. Invocation of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006.
3. Applicability of the extended period of limitation under Section 73(1) of the Finance Act, 1994.
4. Inclusion of the value of High-Speed Diesel (HSD) supplied free of cost in the taxable value.

Issue-wise Detailed Analysis:

1. Validity of the Show Cause Notice dated 21st March 2013:
The petitioner challenged the show cause notice issued by the Additional Commissioner, Service Tax Commissionerate, Kolkata, arguing that the invocation of Rule 5(1) was improper as it had been declared ultra vires by the Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India. The court noted that the facts of the case were not disputed and focused on the legal question. The court ultimately quashed the show cause notice, agreeing with the petitioner that the notice was invalid due to the reliance on the ultra vires provision.

2. Invocation of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006:
The petitioner argued that Rule 5(1) was declared ultra vires to Sections 66 and 67 of the Finance Act, 1994, by the Delhi High Court. The court acknowledged this declaration and noted that the foundation of the impugned show cause notice was based on a provision that had been declared ultra vires. Therefore, the court held that the reliance on Rule 5(1) rendered the show cause notice invalid.

3. Applicability of the extended period of limitation under Section 73(1) of the Finance Act, 1994:
The petitioner contended that the show cause notice was issued beyond the normal period of limitation and did not meet the criteria for the extended period under the proviso to Section 73(1). The court examined the provisions of Section 73(1) and the conditions under which the extended period could be invoked. The court found that the extended period could only be applied in cases of fraud, collusion, willful mis-statement, suppression of facts, or contravention of any provisions with intent to evade payment of service tax. The court concluded that the willful suppression could not be assumed merely on failure to declare certain facts unless it was preceded by deliberate non-disclosure to evade tax. As such, the court held that the extended period was improperly invoked in this case.

4. Inclusion of the value of High-Speed Diesel (HSD) supplied free of cost in the taxable value:
The petitioner argued that the value of HSD supplied free of cost by the service recipient should not be included in the taxable value. The court referred to the judgment in Intercontinental Consultants & Technocrats Pvt. Ltd. and other relevant cases, which held that only the consideration paid for the service could be brought to charge and that including the value of HSD would go beyond the charging provisions. The court agreed with this view, stating that the value of HSD supplied free of cost could not be included in the taxable value and that the authorities could not take a contrary stand based on the provision declared ultra vires.

Conclusion:
The court quashed and set aside the impugned show cause notice, agreeing with the petitioner on all counts. The court held that the extended period of limitation was improperly invoked, the inclusion of the value of HSD supplied free of cost was invalid, and the reliance on Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, was improper as it had been declared ultra vires. The writ petition succeeded, and no order as to costs was made.

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