2022 (9) TMI 743 - AT - Service Tax

Valuation - pure agency services or not - Octroi Charges - amount received after 14.05.2015 towards electricity charges from the assessable value of the service provider - exclusion of the electricity charges from the assessable value for the period prior to 14.05.2015 - exclusion of octroi charges from the assessable value for the entire disputed period from the assessable value - if electricity consumed by the appellant for providing the services of managing IMP watch packing units and warehouse for accessories and sunglasses can be called as expenses incurred as pure agent? HELD THAT - It is obvious that the electricity is consumed in the said operation as a primary input. The entire warehouse and packing activities are located in the premises located at Hosur. A large number of people work in the said premises and activity of packing, de-packing sorting etc. goes on within the premises. Inclusion of octroi charges for the period prior to 14.05.2015 - HELD THAT - Considering the observation of Commissioner (Appeals) in the impugned order, no merits found in the appeal filed by Revenue for inclusion of value of electricity charges into the assessable value by invoking Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 for the period prior to 14.05.2015. For the same reason, there are no merit in the appeal filed by SLP in respect of inclusion of electricity charges for period after 14.05.2015 - the appeal of Revenue on the count of inclusion of octroi charges for the period prior to 14.05.2015 by invoking Rule 5 of Service Tax (Determination of Value) Rules, 2006 cannot be upheld. Inclusion of the octroi charges collected by SLP from TIL for the period after 14.05.2015 - HELD THAT - Any payment of octroi by SLP has to be treated as payment done by SLP on behalf of the owner of the goods, namely, TIL. The question raised by Revenue in its appeal regarding inclusion of octroi has been adequately answered by SLP in the above arguments. Under these circumstances, there are no merit in the appeal filed by Revenue for inclusion of the octroi paid by SLP and recovered from TIL in the assessable value. The appeal of revenue on this count is therefore, rejected. There are no merit in the appeals filed by Revenue as well as that filed by SLP and therefore, both are rejected.

Summary

Issues Involved:
1. Exclusion of electricity charges from assessable value post-14.05.2015.
2. Exclusion of electricity charges from assessable value pre-14.05.2015.
3. Exclusion of octroi charges from assessable value for the entire disputed period.

Detailed Analysis:

1. Exclusion of Electricity Charges from Assessable Value Post-14.05.2015:
The appeal by M/s. Sequel Logistics Private Limited (SLP) contested the partial denial of excluding electricity charges from the assessable value post-14.05.2015. The Commissioner (Appeals) denied this benefit based on the amendment in the law regarding reimbursements effective from 14.05.2015. SLP argued that they paid the electricity charges as a "pure agent" and thus should be excludable from the value. The Tribunal noted that electricity is a primary input in the services provided by SLP and that the reimbursement was not on actuals but subject to a limit, which contradicts the pure agent criteria. Thus, the Tribunal upheld the Commissioner (Appeals)'s decision that these charges should be included in the assessable value post-14.05.2015.

2. Exclusion of Electricity Charges from Assessable Value Pre-14.05.2015:
The Revenue's appeal sought to include electricity charges in the assessable value for the period before 14.05.2015. The Tribunal referenced Section 67 of the Finance Act, 1994, and the Supreme Court's decision in Intercontinental Consultants and Technocrats Private Limited, which clarified that reimbursable expenditures could not be included in the assessable value before the amendment on 14.05.2015. Thus, the Tribunal found no merit in the Revenue's appeal and upheld the exclusion of electricity charges from the assessable value for the period before 14.05.2015.

3. Exclusion of Octroi Charges from Assessable Value for the Entire Disputed Period:
SLP argued that octroi charges paid on behalf of their clients should be excluded from the assessable value as they acted as pure agents. The Tribunal agreed with the Commissioner (Appeals)'s detailed examination, which established that SLP fulfilled the conditions of a pure agent under Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006. The Tribunal noted that octroi is a statutory levy and that SLP merely paid it on behalf of their clients, recovering the exact amount without any markup. The Tribunal also referenced the Supreme Court's decision and CBIC circular clarifying that taxes, cesses, or duties are not consideration for any service and thus not subject to service tax. Consequently, the Tribunal rejected the Revenue's appeal to include octroi charges in the assessable value for the entire disputed period.

Conclusion:
The Tribunal dismissed both the appeals filed by Revenue and SLP. The Tribunal upheld the exclusion of octroi charges and electricity charges pre-14.05.2015 from the assessable value while affirming the inclusion of electricity charges post-14.05.2015. The cross-objection filed by SLP was also disposed of.