2020 (4) TMI 182 - AT - Service Tax

Valuation - inclusion of cost of fuel supplied, or reimbursement for fuel, the actual spending in the assessable value - section 67 of Finance Act, 1994 read with rule 5 of Service Tax (Determination of Valuation) Rules, 2006 - HELD THAT - The decision of the Hon ble Supreme Court in re Bhayana Builders (P) Ltd 2018 (2) TMI 1325 - SUPREME COURT resolved the controversy over the inclusion of goods/ materials supplied by recipient of service, with consequent reduction of cost of contracted undertaking, in the consideration to be taxed for provision of the service. Doubtlessly, the issue arose from the claim for the benefit of abatement of 67% of gross amount charged in notification no. 15/2004-ST dated 10th September 2004 which was amended to explain the expression gross amount charged by notification no. 4/2005-ST dated 1st March 2005 - Nevertheless, the decision of the Hon ble Supreme Court, having gone into the scope of includability of nonmonetary receipts in consideration, does establish the principle that applies across-the-board. There can be no room for doubt that the goods supplied by the recipient of the service without any charge and which, in consequence, does not find inclusion in the recompense for the taxable service is not includable for the purposes of assessment of tax on services. Hon ble Supreme Court in Union of India v. Intercontinental Consultants Technocrats (P) Ltd 2018 (3) TMI 357 - SUPREME COURT held that the amendment in section 67 of Finance Act, 1994 effected on 14th May 2015 validates rule 5 of Service Tax (Determination of Valuation) Rules, 2006 only prospectively - Adverting to the contours of the plea of Union of India in their writ appeal challenging the nullifying of rule 5(1) of Service Tax Rules, 1994, incorporated for the specific purpose of including reimbursable expenses in gross amount charged except in circumstances enumerated in rule 5(2), and the statutory provisions, the Hon ble Supreme Court, finding that legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation - It was also held that the curative legislation effected from 14th May 2015 may, if at all, be applied only prospectively without going into the legality thereof. The submission of Learned Authorized Representative that later decisions of the Tribunal have acknowledged the scope for inclusion after examining the applicability of the above decision does not merit consideration by us. There is no allegation that the appellants were at any stage entitled to use the fuel for operation of other contracts on which higher amounts were charged. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Includability of the cost of fuel supplied or reimbursed by M/s ONGC Ltd in the taxable value of service.
2. Applicability of Rule 5 of Service Tax (Determination of Valuation) Rules, 2006.
3. Interpretation of Section 67 of Finance Act, 1994.
4. Relevance of Supreme Court decisions in similar contexts.
5. Legality of retrospective application of amendments.

Issue-Wise Detailed Analysis:

1. Includability of the cost of fuel supplied or reimbursed by M/s ONGC Ltd in the taxable value of service:
The primary dispute is whether the cost of fuel supplied or reimbursed by M/s ONGC Ltd should be included in the taxable value of the service provided by M/s Heligo Charters Pvt Ltd. The tax authorities argued that the value of 30,82,360 litres of aviation turbine fuel, valued at ?26,03,43,725, should be included in the assessable value, leading to a tax demand of ?3,21,78,484. The adjudicating authority held that the supply of fuel was a non-monetary form of consideration, necessitating its inclusion in the taxable value as per Section 67 of the Finance Act, 1994.

2. Applicability of Rule 5 of Service Tax (Determination of Valuation) Rules, 2006:
The tax authorities relied on Rule 5 of Service Tax (Determination of Valuation) Rules, 2006, which mandates that all expenditure/costs incurred for providing the services should be included in the consideration. The appellant contended, citing the Supreme Court decision in Union of India v. Intercontinental Consultants & Technocrats (P) Ltd, that Rule 5 could only be applied prospectively from 14th May 2015. The Tribunal noted that the impugned order relied on Rule 5 to confirm the differential tax arising from the two modes of fuel cost borne by the recipient of the service.

3. Interpretation of Section 67 of Finance Act, 1994:
The Tribunal examined the interpretation of Section 67, which deals with the valuation of taxable services. The Supreme Court in Commissioner of Service Tax v. Bhayana Builders Pvt Ltd held that the expression "gross amount charged" does not include the value of goods/materials supplied by the service recipient free of charge. The Tribunal applied this principle, concluding that the value of fuel supplied by M/s ONGC Ltd should not be included in the taxable value as it was not part of the consideration charged by the service provider.

4. Relevance of Supreme Court decisions in similar contexts:
The Tribunal referred to the Supreme Court's decision in Bhayana Builders Pvt Ltd, which clarified that goods/materials supplied by the recipient of the service should not be included in the taxable value. Additionally, the Tribunal considered the decision in Intercontinental Consultants & Technocrats (P) Ltd, which invalidated Rule 5 of Service Tax (Determination of Valuation) Rules, 2006, to the extent it included reimbursable expenses in the taxable value. The Tribunal noted that these decisions established the principle that non-monetary receipts and reimbursable expenses should not be included in the taxable value.

5. Legality of retrospective application of amendments:
The Tribunal highlighted that the amendment to Section 67 of the Finance Act, 1994, which included reimbursable expenses in the taxable value, was effective from 14th May 2015 and could not be applied retrospectively. This position was supported by the Supreme Court's observation in Intercontinental Consultants & Technocrats (P) Ltd that such amendments are substantive changes and should be applied prospectively.

Conclusion:
The Tribunal concluded that the impugned order was incorrect in law and must be set aside. The appeal was allowed, and the demand for service tax, interest, and penalty was quashed. The Tribunal emphasized that the value of fuel supplied by M/s ONGC Ltd should not be included in the taxable value of the service provided by M/s Heligo Charters Pvt Ltd, in line with the principles established by the Supreme Court.

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