2022 (5) TMI 12 - HC - Service Tax

Constitutional Validity of Rule 5(1) of Service Tax (Determination of Value) Rules - levy of service tax - Bank charges, CCTL charges, CFS charges from their clients payable to the respective Banks, it was specifically mentioned in the invoices that these charges are 'Non Taxable Services' - reimbursement of expenses or not - HELD THAT - The issue involved herein is squarely covered by the decision of the Honourable Supreme Court in UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT in which, the order of the Delhi High Court declaring Rule 5 of Service Tax (Determination of Value) Rules as ultra vires and unconstitutional, was affirmed. On a perusal of the order impugned herein, it is seen that the aforesaid decision was not taken into consideration by the learned Judge, while hearing the writ petitions filed by the appellant questioning the order / notices issued by the respondent authorities, demanding service tax towards 'non taxable services'; and the appellant was simply directed to approach the appellate authority by filing statutory appeals, after having observed that the issues involved are factual in nature. This court is of the view that such course adopted by the learned Judge cannot be countenanced. Therefore, the order of the learned Judge dated 17.06.2021 passed in the writ petitions is liable to be set aside and is accordingly, set aside. Consequently, the matters are remanded back to the authority concerned for fresh consideration. Appeal disposed off.

Issues Involved:
1. Validity of Rule 5 of the Service Tax (Determination of Value) Rules.
2. Levy of service tax on non-taxable services.
3. Directions to file statutory appeals before the appellate authority.
4. Consideration of the Supreme Court's decision in Union of India v. Intercontinental Consultants and Technocrafts Private Limited.

Detailed Analysis:

1. Validity of Rule 5 of the Service Tax (Determination of Value) Rules:
The appellant challenged the validity of Rule 5 of the Service Tax (Determination of Value) Rules, which was declared ultra vires and unconstitutional by the Delhi High Court in Intercontinental Consultants. This decision was affirmed by the Supreme Court in Union of India v. Intercontinental Consultants and Technocrafts Private Limited, which held that Rule 5 went beyond the mandate of Section 67 of the Finance Act. The Supreme Court emphasized that service tax should be levied only on the value of services actually provided and not on reimbursable expenses.

2. Levy of Service Tax on Non-Taxable Services:
The appellant, engaged in providing various services, collected certain charges from customers, which were mentioned as "Non-Taxable Services" in the invoices. Despite this, the department issued show cause notices demanding service tax on these amounts, invoking Rule 5. The appellant argued that these charges were reimbursements and not part of the taxable service value. The learned Judge initially directed the appellant to file statutory appeals, without considering the Supreme Court's ruling that such reimbursements should not be included in the taxable value.

3. Directions to File Statutory Appeals Before the Appellate Authority:
The learned Judge, in the impugned order, directed the appellant to file statutory appeals before the appellate authority, stating that the issues were factual and required a detailed examination of the service charge breakup. The Judge also directed that any appeals filed should be considered on merits without reference to the limitation period.

4. Consideration of the Supreme Court's Decision:
The High Court noted that the learned Judge did not consider the Supreme Court's decision in Intercontinental Consultants while disposing of the writ petitions. The Supreme Court had clearly stated that Rule 5 was ultra vires and that service tax should only be levied on the actual value of services provided. The High Court found that the learned Judge's direction to file statutory appeals was not appropriate and set aside the impugned order.

Separate Judgments and Directions:
For WA.Nos.2857 and 2807 of 2021, the High Court directed the appellant to submit explanations to the statements of demand within two weeks. The concerned authority was instructed to consider these explanations and pass orders on merits, in accordance with the law, and in light of the Supreme Court's decision, within four weeks.

For WA.No.2808 of 2021, the High Court set aside the order-in-original No.4/2020 dated 06.02.2020 and remanded the matter for fresh consideration. The appellant was given two weeks to submit relevant documents, and the authority was directed to pass orders on merits and in accordance with the law, considering the Supreme Court's decision, within four weeks. If the appellant failed to submit explanations within the stipulated time, the authority was to proceed based on available materials.

Conclusion:
The High Court disposed of all the writ appeals, setting aside the impugned orders and remanding the matters for fresh consideration by the concerned authorities, ensuring compliance with the Supreme Court's ruling on the non-inclusion of reimbursable expenses in the taxable value of services. No costs were imposed, and connected miscellaneous petitions were closed.

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