2019 (5) TMI 1233 - AT - Service Tax

Valuation - charge for the diesel reimbursed by the service recipients - Management, Maintenance and Repair Service - Business Auxiliary Service - Section 67(1) of the Act read with Rule 5 of the Service Tax (Determination of Value) Rules, 2006 - HELD THAT - The appellants were required to perform various services including diesel filing. It needs to be remembered that the scope of this service was limited to the activity of filling the diesel in DG sets for which the appellants were paid service fee of ₹ 500/- or ₹ 750/- per site. The diesel was to be procured from the filling stations authorised by the service recipients and the value of diesel was paid to the appellants only upon appropriate verification. The value of diesel was in the nature of reimbursement. The appellants had paid service tax on the element of service involved in filling of diesel and by no stretch of imagination it can be urged that any service was rendered by the appellants corresponding to the value of diesel. The valuation of taxable service for charging service tax could only be the gross amount charged for providing such taxable services which in the present case is the filing of diesel and any other amount cannot be a part of the valuation as it cannot be an amount for such taxable services. The Department cannot go beyond the contract value and arrive at the value of taxable service merely because of the use of the word gross in Section 67 of the Act. The use of the word charged makes it clear that it refers to the amount billed by the service provider to the service recipient and, therefore, unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining value on which service tax is payable as was observed by the Supreme Court in CST, DELHI VERSUS M/S. BHAYANA BUILDER PVT. LTD. 2018 (5) TMI 721 - CESTAT NEW DELHI . The cost of free supply of goods provided by the service recipients to the service provider is neither an amount charged by the service provider nor can it be regarded as a consideration for the service provided by the service provider. It has no nexus with the taxable services for which value is sought to be determined. The impugned order relies upon Rule 5(1) of the Rules which Rule, has been struck down by the Supreme Court in UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT as being ultra vires the provisions of Section 67 of the Act. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Inclusion of the value of diesel in the gross value of taxable services.
2. Validity of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006.
3. Interpretation of "consideration" under Section 67 of the Finance Act, 1994.
4. Impact of Supreme Court decisions on valuation of taxable services.

Detailed Analysis:

1. Inclusion of the Value of Diesel in the Gross Value of Taxable Services:
The appellants, service providers rendering "Management, Maintenance and Repair Service" and "Business Auxiliary Service," were not including the value of diesel in the taxable services. They argued that diesel was procured for and on behalf of the service recipients and reimbursed by them, thus not forming part of the consideration for taxable services. The Commissioner, however, included the cost of diesel in the gross value of taxable services, asserting that diesel was an essential input for keeping DG sets operational, and thus its cost should be included under Section 67(1) of the Act.

2. Validity of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006:
The impugned orders relied on Rule 5(1), which prescribes that any expenditure or costs incurred by the service provider while rendering a taxable service should be included in the value for charging service tax. However, the Supreme Court in Intercontinental Consultants and Technocrats Private Limited struck down Rule 5(1) as ultra vires Section 67 of the Act. The Tribunal noted that reliance on Rule 5(1) was misplaced as it had been invalidated by the Supreme Court.

3. Interpretation of "Consideration" under Section 67 of the Finance Act, 1994:
Section 67(1) states that the value of taxable services is the gross amount charged by the service provider for such services. The appellants argued that only the amount representing consideration for the service provided could be subjected to service tax. The Supreme Court in Intercontinental Consultants and Bhayana Builders clarified that reimbursable expenses, including the value of diesel supplied free of cost, do not form part of the consideration for taxable services. The Tribunal agreed with this interpretation, noting that the value of diesel reimbursed to the appellants was not a consideration for the service of "filling diesel."

4. Impact of Supreme Court Decisions on Valuation of Taxable Services:
The Tribunal heavily relied on the Supreme Court decisions in Intercontinental Consultants and Bhayana Builders. These decisions emphasized that the value of goods supplied free of cost by the service recipient could not be included in the gross amount charged for taxable services. The Tribunal noted that diesel filling was a service for which a separate consideration was identified, and diesel could not be considered an input for the provision of this service. The Supreme Court's interpretation that only the gross amount charged for the service provided could be taxed was upheld.

Conclusion:
The Tribunal set aside the impugned orders dated 29 October 2013, 31 July 2014, and 11 January 2018, confirming that the value of diesel reimbursed by the service recipients could not be included in the gross value of taxable services. The appeals were allowed, and the orders were quashed. The Tribunal concluded that the cost of diesel, even if reimbursed, does not form part of the taxable service as per the Supreme Court's rulings and the provisions of Section 67 of the Act.