2024 (1) TMI 677 - AT - Service Tax

Levy of Service Tax - reimbursement amount incurred for the service recipient - appellant had paid service tax on the amount received towards agency charges while providing clearing and forwarding agent service - HELD THAT - The Supreme Court in UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT noticed the various reimbursable claims which were included in the gross value. The Supreme Court noted that rule 5 does bring within its sweep the expenses which are incurred while rendering the service and are reimbursed and, therefore, what was required to be decided was whether section 67 of the Act permits subordinate legislation to be enacted as was done by rule 5. It needs to be noted that prior to 19 April, 2006, in the absence of a rule, the valuation was required to be done as per the provisions of section 67 of the Act. The Supreme Court noticed that the charging section 66 provides that there shall be levied service tax @ 12% of the value of taxable services referred to in the sub-clauses of Section 65 and collected in such manner as may be prescribed. Thus, the service tax is on the value of taxable services and, therefore, it is the value of the services which are actually rendered which has to be ascertained for the purpose of calculating the service tax. It is for this reason that the Supreme Court observed that the expression such occurring in section 67 of the Act assumes importance - The Supreme Court, therefore, held that the value of material which is supplied free by the service recipient cannot be treated as gross amount charged as that is not a consideration for rendering the service. The appeal filed by the Department was, therefore, dismissed. In view of the decisions of the Supreme Court and the Delhi High Court in Intercontinental Consultants, the amount of reimbursement could not have been included in the taxable value of the service under rule 5(1) of the 2006 Rules - Impugned order set aside - appeal allowed.

Summary

Issues:
The sole issue in this appeal is whether the appellant, who paid service tax on agency charges, is also liable to pay service tax on the reimbursement amount incurred for the service recipient.

Summary:

Issue 1: Consideration for Taxable Service
The Commissioner held that the expenditure incurred by the service provider is considered as a consideration for the taxable service under rule 5(1) of the 2006 Rules. Despite the appellant citing a Delhi High Court decision, the Commissioner did not rely on it due to a pending appeal before the Supreme Court. The reimbursement amount was included in the total value of taxable service provided by the appellant based on rule 5(1) of the 2006 Rules.

Issue 2: Interpretation of Section 67 of the Finance Act
Section 67 of the Finance Act deals with the valuation of taxable services for charging service tax. The Delhi High Court in a previous case interpreted section 67, stating that only amounts representing consideration for the provision of service are subject to service tax. The High Court emphasized that the value of service rendered by the assessee cannot exceed the gross amount charged by the service provider for the service provided.

Issue 3: Supreme Court Decision
In the appeal filed by the Department, the Supreme Court analyzed reimbursable claims included in the gross value and the scope of rule 5. The Supreme Court held that the value of material supplied free by the service recipient cannot be considered as a "gross amount charged" and is not a "consideration" for the service. Therefore, the Supreme Court dismissed the appeal filed by the Department.

In conclusion, based on the decisions of the Supreme Court and the Delhi High Court, the reimbursement amount could not be included in the taxable value of the service under rule 5(1) of the 2006 Rules. The Commissioner's order confirming the demand of service tax was set aside, and the appeal was allowed.