2018 (7) TMI 1539 - HC - Service Tax

Levy of Service Tax - legal services / law firm - amounts paid to senior counsel for services rendered to third party clients in the form of representation in Courts etc. - Rule 5 of the Service Tax (Determination of Value) Rules, 2006 - Held that - Division Bench ruling of this Court in Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India 2012 (12) TMI 150 - DELHI HIGH COURT had declared that Rule 5(1) of the Rules to the extent it mandates inclusion of reimbursements to the assessee, in respect of payments made to third parties cannot be subjected to service tax levy. The Revenue could not have included the payments received as reimbursements, payments made by the assessee/petitioner or received through reimbursements towards Senior Counsel fee, in the value of services rendered by it - impugned order quashed - petition allowed - decided in favor of petitioner.

Summary

Issues:
1. Challenge to demand of service tax levy on payments made to senior counsel.
2. Interpretation of Rule 5 of the Service Tax (Determination of Value) Rules, 2006.
3. Applicability of Division Bench ruling in Intercontinental Consultants & Technocrats Pvt. Ltd. case.
4. Examination of Sections 66 and 67 of the Finance Act, 1994.
5. Impact of the amendment to Section 67 by the Finance Act, 2015.

Analysis:
1. The petitioner contested a service tax demand of ?38,30,003 imposed by the Assistant Commissioner of Service Tax following an adjudication resulting in an order dated 31.03.2017. The petitioner, a law firm, argued that payments to senior counsel for services provided to third-party clients should not be subject to service tax under the Finance Act, 1994. The impugned order relied on Rule 5 of the Service Tax Rules to include reimbursements in the value of services for taxation.

2. The levy was introduced on 01.09.2009, and the petitioner received two show cause notices covering the period from 01.09.2009 to 30.06.2012. The petitioner cited a Division Bench ruling in the Intercontinental Consultants case, where it was held that Rule 5(1) of the Rules, mandating the inclusion of reimbursements to the assessee, cannot be subjected to service tax levy. This judgment was later affirmed by the Supreme Court.

3. The Supreme Court affirmed that service tax is based on the value of services actually rendered. The valuation of taxable services should be the gross amount charged for providing such services. The Court found that Rule 5 of the Rules exceeded the mandate of Section 67. The Legislature amended the Act in 2015 to include reimbursable expenses in the valuation of taxable services, but this change was prospective.

4. Considering these developments, the Court concluded that the Revenue erred in including reimbursements in the value of services provided by the petitioner. The impugned order was quashed, and the Assessing Officer was directed to initiate fresh assessment proceedings for any other valid claims during the relevant period. All rights and contentions of the parties were reserved, and the writ petition was allowed accordingly.