2022 (2) TMI 1124 - AT - Service Tax

Valuation - inclusion of interest in the gross value - Business Auxiliary Services - whether the amount of interest so received should be included while calculating the gross value of amount of consideration received by the appellant for providing Business Auxiliary Services to M/s. Khoday India Ltd.? - invocation of extended period of limitation - HELD THAT - The perusal of provision of Section 67 of Finance Act, makes it clear that the taxable value is the amount of consideration (for providing the services whether mandatory or not mandatory form but the amount) charged by the service provider for the taxable service being provided by him. It also clarifies that if any benefit accrues to either of the parties whether to service provider or to service recipient which is not arising in lieu of taxable service, the same shall not be liable to be added to the valuation of services. The Hon ble Apex Court in the case of MORIROKU UT INDIA (P) LTD. VERSUS STATE OF UP. 2008 (3) TMI 513 - SUPREME COURT while considering the value towards the provisions of services of renting of immovable property held that the price, which is the amount of consideration for providing service of renting of immovable property is just the rent received. It was specifically held that for the purpose of levy of Service Tax, it shall only be the amount accrued to service which shall be taxable, notional interest cannot be added to the value of such services. The adjudicating authority has wrongly considered the interest received on security deposit as part of consideration received by appellant for providing the Business Auxiliary Service without establishing as to how the said security deposit is includable in the amount of consideration charged for the taxable value provided by the appellant M/s. Khoday India Ltd. - This Tribunal, Mumbai Bench also in the case of MURLI REALTORS PVT. LTD., MAGRPATTA TOWNSHIP DEVELOPERS CONSTRUCTION CO. LTD., JAIN CONSTRUCTION, SAI CONSTRUCTION PVT. LTD., INDIA LAND INFRASTRUCTURE DEVELOPMENT PVT. LTD., RVS HOSPITALITY DEVELOPMENT PVT. LTD., VANSUM INDUSTRIES AND THE MANJRI STUD FARM PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE PUNE-II 2014 (9) TMI 461 - CESTAT MUMBAI while relying upon the decision of Hon ble Apex Court in the case of MorirokotUT India P Ltd. has held that there is no scope of adding any notional interest to the value of taxable service rendered. The demand in the present issue also pertains to the period beyond the year 2012 when the concept of negative list got introduced in Finance Act. According to the said Act, only such services, irrespective of its nature, were taxable which are not mentioned in negative list as were provided under section 66D of Finance Act 2012. The service by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount are mentioned in clause (n) and (i) of said section 66 D hence are not to be taxable. Coming to the applicability of Rule 3 and 4 of Valuation Rules based whereupon the demand was proposed in the impugned Show Cause Notice we hold that these Rules are nothing but the explanation of section 67. Once the value of interest received cannot be considered to be a part of the gross value for taxable service in terms of section 67 of Finance Act, the same cannot be made inclusive in terms of said Rule 3 of the Valuation Rules - the said amount of interest cannot form part of the gross value of taxable service as being provided by the appellant. The definition of consideration as mentioned in the explanation to section 67 further corroborates the said observations. It is held that the demand was proposed on mere basis of presumption and has been confirmed on a vague reasoning. Hence is liable to be set aside. Extended period of limitation - HELD THAT - There is no denial that the appellant has been filing its Service Tax returns regularly. The appellant has already been registered with the Service Tax department. Department had the option to and had assessability to the entire information about receiving the disputed amount of interest by the appellant since the year 2009. Suppression of facts cannot be alleged against the appellant. The fact being in the knowledge of the department since august 2012, no question of invoking the extended period at all arise. With respect to the taxable service being provided by the appellant there is no denial for discharge of liability of service tax. Hence there was never any intentional evasion on part of the appellant. It becomes crystal clear that there was neither a wilful mis-declaration nor wilful suppression. The extended period therefore has wrongly been invoked. The question as framed is adjudicated in negative holding that the amount of interest received by the appellant, the service provider from the recipient should not be included in the gross value of the amount of consideration received by the appellant, it being the appellant s income from his own money deposited with the recipient of service. It accordingly is held to have no nexus with the service of Business Support service being provided to M/s. Khoday - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Inclusion of interest on security deposit in the gross value of taxable service.
2. Invocation of the extended period of limitation for issuing the Show Cause Notice.

Issue-wise Detailed Analysis:

1. Inclusion of Interest on Security Deposit in Gross Value of Taxable Service:

The appellants were engaged in providing Business Auxiliary Services and had deposited ?5 crores as a security deposit with M/s. Khoday India Ltd., which paid interest on this deposit. The department contended that the interest received should be included in the gross value of the taxable service under Rule 3 of the Service Tax (Determination of Value) Rules, 2006. The appellant argued that the interest was earned on their own investment and should not be included in the taxable value.

The Tribunal examined Section 67 of the Finance Act, which defines the value of taxable services. It was observed that only the consideration for the service provided should be included in the taxable value. The Tribunal cited precedents, including the Supreme Court's ruling in MorirokoUT India P. Ltd. vs. State of UP, which clarified that notional interest on security deposits should not be included in the value of taxable services.

The Tribunal also referred to the Board’s Circulars and amendments to Section 67, which excluded interest on loans from the taxable value. The agreement between the parties clearly indicated that the ?5 crore was a security deposit, not a consideration for the service. Therefore, the interest on this deposit could not be included in the gross value of the taxable service.

2. Invocation of the Extended Period of Limitation:

The department issued the Show Cause Notice in 2015, covering the period from 2009, invoking the extended period of limitation under Section 73(1) of the Finance Act, citing suppression of facts. The appellant argued that the department had audited their records in 2012 and was aware of all relevant facts, thus the extended period could not be invoked.

The Tribunal noted that the extended period could only be invoked in cases of fraud, collusion, or willful suppression of facts. Since the department had conducted an audit in 2012 and had access to all information, there was no suppression of facts. The Tribunal referred to the Supreme Court’s decisions in Padmini Products vs. CCE and Anand Nishikawa Co Ltd. vs. CCE, which held that the extended period could not be invoked without evidence of willful suppression or fraud.

Conclusion:

The Tribunal concluded that the interest received on the security deposit should not be included in the gross value of the taxable service as it was not a consideration for the service provided. The Show Cause Notice was also found to be barred by time as the extended period of limitation was wrongly invoked. Consequently, the demand for service tax and the order under challenge were set aside, and the appeal was allowed.