2025 (2) TMI 742 - AT - Service Tax

Valuation of service tax - inclusion of charges collected by the appellant apart from service charges in the gross taxable value for the purpose of service tax under Section 67 of the Finance Act 1994 - Pure Agent under Rule 5(2) of the Service Tax (Determination of Value) Rules 2006 - invocation of extended period of limitation - HELD THAT - The issue is no more res-integra in view of the decision of the Honourable Supreme Court in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd 2018 (3) TMI 357 - SUPREME COURT which has considered the issue of liability to pay service tax on reimbursable expenses received by the service provider in the course of rendering services for the client apart from the consideration received for rendering the services on which the client has discharged the liability to pay service tax. The Honourable Supreme Court affirmed the decision of the Delhi High Court in Intercontinental Consultants Technocrats Pvt Ltd v UOI 2012 (12) TMI 150 - DELHI HIGH COURT wherein Rule 5(1) of the Service Tax Valuation Rules 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services in the value of such taxable services was stuck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections. Conclusion - The service tax should be levied only on the actual consideration for the service provided excluding reimbursable expenses unless legislatively amended. The impugned order is set aside - appeal allowed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the charges collected by the appellant, apart from service charges, should be included in the gross taxable value for the purpose of service tax under Section 67 of the Finance Act, 1994.
Whether the appellant qualifies as a "Pure Agent" under Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, thus excluding certain expenses from the taxable value.
Whether the decision of the Supreme Court in UOI v Intercontinental Consultants and Technocrats Pvt Ltd affects the inclusion of reimbursable expenses in the taxable value.

ISSUE-WISE DETAILED ANALYSIS

1. Inclusion of Additional Charges in Gross Taxable Value

Relevant legal framework and precedents: Section 67 of the Finance Act, 1994, and Rule 5(1) of the Service Tax Valuation Rules, 2006, were central to determining the taxable value. The appellant argued based on past tribunal decisions, including Sangamitra Services Agency v CCE, Chennai, which supported exclusion of certain expenses from taxable value.
Court's interpretation and reasoning: The Tribunal referred to the Supreme Court's ruling in UOI v Intercontinental Consultants and Technocrats Pvt Ltd, which declared Rule 5(1) ultra vires, thereby supporting the exclusion of reimbursable expenses from the taxable value.
Key evidence and findings: The appellant provided evidence of past tribunal decisions and the Supreme Court ruling, which aligned with their argument for exclusion of reimbursable expenses.
Application of law to facts: The Tribunal applied the Supreme Court's interpretation to the appellant's case, concluding that reimbursable expenses should not be included in the taxable value.
Treatment of competing arguments: The Department's argument for inclusion was based on Rule 5(1), which was invalidated by the Supreme Court, weakening their position.
Conclusions: The Tribunal concluded that the additional charges collected were not part of the taxable service value, in line with the Supreme Court's interpretation.

2. Qualification as a "Pure Agent"

Relevant legal framework and precedents: Rule 5(2) of the Service Tax Valuation Rules, 2006, defines the conditions under which a service provider can be considered a "Pure Agent."
Court's interpretation and reasoning: The Tribunal did not find it necessary to delve deeply into this issue due to the overriding effect of the Supreme Court's decision, which rendered Rule 5(1) inapplicable.
Key evidence and findings: The appellant's failure to qualify as a "Pure Agent" was initially a point of contention, but became moot in light of the Supreme Court ruling.
Application of law to facts: The Tribunal focused on the broader legal principle established by the Supreme Court, which negated the need for detailed analysis under Rule 5(2).
Treatment of competing arguments: The Department's reliance on Rule 5(2) became irrelevant as the primary legal basis for inclusion was invalidated.
Conclusions: The Tribunal did not need to determine the appellant's status as a "Pure Agent" due to the overarching legal principle established by the Supreme Court.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The Tribunal quoted the Supreme Court's decision extensively, particularly emphasizing that "the valuation of tax service cannot be anything more or less than the consideration paid as quid pro quo for rendering such a service."
Core principles established: The Tribunal reinforced the principle that reimbursable expenses are not to be included in the taxable value unless explicitly provided by statute, as clarified by the Supreme Court.
Final determinations on each issue: The Tribunal set aside the impugned order in appeal and allowed the appeal, granting consequential relief to the appellant.

The Tribunal's decision aligns with the Supreme Court's interpretation, emphasizing that service tax should be levied only on the actual consideration for the service provided, excluding reimbursable expenses unless legislatively amended. This decision underscores the importance of adhering to statutory provisions and the limitations of subordinate legislation.

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