2015 (9) TMI 586 - HC - Service Tax

Waiver of pre deposit - business auxiliary services - inclusion of the reimbursement expenses as the value of the taxable services - Held that - Intercontinental Consultants (2012 (12) TMI 150 - DELHI HIGH COURT) held that rule 5 (1) - which sought to include expenditure or costs incurred by the service provider in the course of providing taxable services in the value for the purpose of charging service tax - to be contrary to Section 67 of the Finance Act. That judgment was delivered on 30.11.2012. The Order in Original was made on 10.10.2012. It prima facie contains indications that the adjudicating authority premised the demand on the operation and validity of Rule 5 (1). Given these circumstances, the Court is of the opinion that the order of the CESTAT imposing a substantial burden as a condition for hearing of the appeal before it, cannot be sustained. The order to the extent it directs deposit of 50% of the impugned demand is consequentially set aside. - Decided in favour of assessee.

Summary

Issues:
1. Validity of the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) directing deposit of 50% of disputed amount.
2. Inclusion of reimbursement expenses in the value of taxable services.
3. Legality of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006.
4. Compliance with deposit requirements and financial constraints of the appellant.

Analysis:
1. The appellant challenged the CESTAT's order directing a deposit of 50% of the disputed amount, arguing it was untenable. The appellant provided business auxiliary services and received a show cause notice proposing inclusion of reimbursement expenses in taxable services. The Order in Original confirmed the demand, leading to an appeal to CESTAT with a waiver application for pre-deposit. CESTAT granted partial relief, requiring 50% compliance for hearing the appeal.

2. The appellant contended that CESTAT's order was untenable, citing a judgment declaring Rule 5(1) of the Service Tax Rules ultra vires the Finance Act. The show cause notice relied on Rule 5(1), making the pre-deposit requirement unjustifiable. The Revenue argued that since 50% relief was granted, no grievance existed, and the appellant had to comply with statutory provisions without demonstrating financial constraints.

3. The Court referred to a previous judgment invalidating Rule 5(1) for including service provider costs in taxable service value. Noting the Order in Original's reliance on this rule, the Court found CESTAT's substantial deposit condition unsustainable. Consequently, the directive to deposit 50% of the demand was set aside, instructing CESTAT to proceed with the appeal on its merits.

4. Ultimately, the Court allowed the appeal, emphasizing the invalidity of Rule 5(1) and the unjust nature of the deposit requirement imposed by CESTAT. The decision highlighted the need for a fair hearing without burdensome pre-deposit conditions, ensuring the appeal would be heard on its substantive merits rather than financial constraints.