2018 (9) TMI 500 - AT - Service Tax

Valuation - appellant had received certain amounts towards electricity and water charges since 2008-2009 and on which no service tax has been paid - Rule 5(2) of Service Tax (Determination of Value) Rules - Held that - It is a matter of record that appellants have been charging 20% of sales proceeds from Shan-e-Bhopal Restaurant as a commission for providing support service to business in the form of providing space for the restaurant and other infrastructure support which included the premises for housing restaurant, man power, security service, etc. It is also a matter of fact that electricity and water charges have also been recovered by the appellant from the restaurant owner on actual basis and same has been deposited with the respective authorities providing electricity and water to the said premises - appropriate Service tax is payable on 20% commission charged by the appellant from Shan-e-Bhopal restaurant for providing the premises and other infrastructure facilities. Whether the electricity and water charges recovered by the appellant will form part of the value of the service as per the provisions of Finance Act, 1994 or not? - Held that - It can be seen that electricity and water services are being provided by other Government agencies and the charges for use of the said facilities is being raised on the service provider i.e. the appellant on actual basis which the appellant is collecting from the Shan-e-Bhopal Restaurant and same is deposited with the authorities providing electricity and water. In view of these facts, it can be concluded that the appellant is purely working as an agent in collecting the charges with regard to supply of water and electricity and deposited the same with authorities concerned - appellant has behaved purely as and agent and the charges of electricity and water cannot be included in the taxable value of the services, namely support service of business provided by the appellant - the charges collected by them towards electricity and water, are not to be included in the taxable value for charging service tax. Appeal allowed.

Summary

Issues:
1. Service tax liability on commission charged by the appellant.
2. Service tax liability on electricity and water charges collected by the appellant.
3. Applicability of the extended time provision for demand under the first show cause notice.

Analysis:
1. The appellant entered into a joint venture to operate a rail coach restaurant and received 20% commission from sale proceeds for providing infrastructure support. The department detected unpaid service tax on electricity and water charges. Three show cause notices were issued, demanding service tax and penalties. The Commissioner (Appeals) confirmed the charges. The appellant argued that service tax on commission was paid, and electricity/water charges were collected as an agent, not forming part of taxable value. The Tribunal noted the appellant's role as a service provider and agent, concluding that service tax on commission was payable, but charges for electricity and water were not taxable.

2. The Tribunal considered the provisions of Rule 5(2) of the Service Tax Valuation Rules, stating that expenses incurred as a pure agent should be excluded from taxable value. As the appellant collected electricity and water charges on an actual basis and deposited them with the respective authorities, acting purely as an agent, these charges were not to be included in the taxable value for service tax. The Tribunal emphasized that the appellant's role was that of an agent in collecting these charges, not a service provider, thereby excluding them from the service tax liability.

3. The appellant argued that the demand under the first show cause notice was time-barred due to no element of suppression, fraud, or mis-declaration. The Tribunal did not find merit in the Commissioner (Appeals) decision and set it aside, allowing the appeal. The Tribunal held that while service tax on the commission was payable, the electricity and water charges collected by the appellant were not to be included in the taxable value for service tax, based on the appellant's role as a pure agent. The judgment clarified the distinction between taxable and non-taxable components of the appellant's transactions, providing a detailed analysis of each issue raised in the case.