2018 (9) TMI 1717 - AT - Service Tax

Valuation - Clearing and Forwarding Agency Service - inclusion of reimbursable expenses in assessable value - Rule 5 of the Service Tax (Determination of Value) Rules, 2006. Held that - The Hon ble Supreme Court in the case of M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. 2018 (3) TMI 357 - SUPREME COURT OF INDIA after analyzing the scope of Rule 5 of the Service Tax (Determination of Value) Rules, 2006, has held that only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. In the case on hand, the lower authorities have solely relied upon Rule 5 of the Service Tax Rules, 2006 to say that any expenditure or cost incurred by the service provider in the course of providing taxable service of such expenditure or cost shall be treated as consideration which shall be included in the value for the purposes of charging service tax and this was in terms of Section 67 of the Finance Act which prescribed the value of payment of service tax which is on the gross amount by the service provider - the findings of the lower authorities are clearly incorrect and same is not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Threshold exemption claim under Notification No. 6/2005-ST for the years 2005-06 and 2006-07.

Analysis:
The appellant, engaged in providing "Clearing and Forwarding Services," claimed threshold exemption of ?4 lakhs for the years 2005-06 and 2006-07 under Notification No. 6/2005-ST. The Department issued a Show Cause Notice alleging the appellant crossed the threshold and demanded payment of ?52,132. The Order-in-Original confirmed the demand, upheld by the Commissioner (Appeals), leading to the appeal before the Tribunal. The dispute pertained to the period from 01.04.2005 to 30.09.2006.

The appellant's submissions highlighted that the remuneration received was fixed and included reimbursements for expenses not subject to tax. They also cited relevant case laws to support their argument that service tax liability does not extend to reimbursement of expenses. Additionally, they contended that Rule 5 of the Service Tax (Determination of Value) Rules, 2006, was struck down by the Delhi High Court and approved by the Supreme Court in 2018.

The Department, while supporting the lower authorities, acknowledged the impact of the case law related to Rule 5.

The Tribunal examined the contentions and referenced the Supreme Court's interpretation in the M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. case. The Court emphasized that the valuation of taxable services for service tax purposes should be based on the consideration paid for the service provided. It was noted that the lower authorities erred in relying solely on Rule 5 to include all expenditures as consideration for service tax. Consequently, the Tribunal set aside the lower authorities' orders, following the Supreme Court's decision, and allowed the appeal with any necessary reliefs.

In conclusion, the Tribunal's decision was based on the interpretation of relevant legal provisions and case laws, emphasizing that service tax should be levied only on the consideration paid for the service provided, excluding reimbursements for expenses. The Tribunal's ruling aligned with the Supreme Court's stance on the matter, leading to the appellant's successful appeal and the setting aside of the previous orders.