2019 (5) TMI 1814 - AT - Service Tax

Levy of Service Tax - income derived from supply of cranes and mobilization/transport of labour - case of the appellant is that for erection of plants, specific work orders are issued, but when a client requires cranes or labour, different work orders are issued and, therefore, the income derived from these separate work orders cannot be clubbed with the income derived from the erection of plants for the purpose of levy of Service Tax - extended period of limitation - HELD THAT - This Section 67 of the Act deals with valuation of taxable services for charging Service Tax. Sub-section (1) of Section 67 provides that where Service Tax is chargeable on any taxable service with reference to its value, then such value shall where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by the service provider. It is, therefore, clear that only such amount is subject to Service Tax which represents consideration for provision of service and any other amount which is not a consideration for provision of service cannot be subjected to service tax. 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. Reliance placed in the impugned order on Rule 5(1) of the 2006 Rules for including the cost of cranes/mobilization of labour in the value of taxable services under Rule 5(1) of the 2006 Rules is not justified. Extended period of limitation - HELD THAT - As it is not possible to sustain the demand under the impugned order, it will not be necessary to examine the contention raised by Learned Counsel for the appellant that the extended period of limitation under Section 73 of the Act could not have been invoked in the present case. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Liability to pay Service Tax on income derived from supply of cranes and mobilization/transport of labour.
2. Applicability of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006.
3. Invocation of the extended period of limitation under Section 73 of the Finance Act, 1994.
4. Imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Liability to Pay Service Tax on Income Derived from Supply of Cranes and Mobilization/Transport of Labour:
The appellant is engaged in the erection and installation of cement and steel plants and had obtained registration under the category of "erection, commissioning, and installation" services. The appellant claims that the supply of cranes and mobilization/transportation of labour were independent activities not related to the work orders for erection and installation of plants. Separate invoices were issued for these activities, and they were reflected as "exempted" in the ST-3 Returns. The audit wing found that the appellant raised separate bills for crane hire charges, labour transportation charges, and other related charges, which were used for completing the contracts. The Commissioner concluded that these charges should be included in the taxable value of services provided under the work orders for erection and installation of plants. However, the Tribunal found that the work orders for hiring cranes and mobilizing labour were independent and had no connection with the work orders for erection of plants, thus supporting the appellant's contention.

2. Applicability of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006:
The Commissioner based the demand on Rule 5(1) of the 2006 Rules, which states that any expenditure or cost incurred by the service provider in the course of providing taxable service shall be treated as consideration for the taxable service and included in the value for charging service tax. However, this rule was struck down by the Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India, and the decision was upheld by the Supreme Court. The Tribunal held that the reliance on Rule 5(1) for including the cost of cranes and mobilization of labour in the value of taxable services was not justified.

3. Invocation of the Extended Period of Limitation under Section 73 of the Finance Act, 1994:
The appellant contended that the demand for the period 2007-08 was time-barred as the amount had been disclosed in the ST-3 return filed on 23 July 2008. The Commissioner, however, held that the appellant had misstated the facts by showing the amount as exempted service and thus justified the invocation of the extended period of limitation. The Tribunal did not find it necessary to examine this contention further since the demand itself was not sustainable.

4. Imposition of Penalties under Sections 76 and 78 of the Finance Act, 1994:
The Commissioner imposed penalties under Sections 76 and 78 for short payment of service tax. The appellant argued that there was no suppression of facts with the intent to evade payment of service tax, as the income from independent activities was declared as exempted in the ST-3 returns. The Tribunal, having set aside the demand, found it unnecessary to sustain the penalties imposed.

Conclusion:
The Tribunal set aside the impugned order, holding that the income derived from the supply of cranes and mobilization/transport of labour was independent of the work orders for erection of plants and thus not liable to be included in the taxable value. The reliance on Rule 5(1) of the 2006 Rules was found unjustified, and the penalties imposed were also set aside. The appeal was allowed.