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TMI Blog2024 (1) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... cost supplied by the service recipient to the service provider, no service tax can be levied on it in view of the decision of the Supreme Court in Bhayana Builders [ 2018 (2) TMI 1325 - SUPREME COURT] . Appeal allowed. - HON BLE MR. P. K. CHOUDHARY, MEMBER (JUDICIAL)HON BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) Shri Bharat B. Raichandani, Advocate for the Appellant Shri Sandeep Pandey, Authorized Representative for the Respondent ORDER SANJIV SRIVASTAVA : This appeal is directed against Order-in-Original No.51/PC/2022-23 dated 28.02.2023 of the Principal Commissioner CGST and Central Excise, Lucknow. By the impugned order following has been held: ORDER (1) I confirm the demand and order recovery of Service Tax amounting to Rs.5,13,91,838/- (Rupees Five Crore Thirteen Lakh Ninety-One Thousand Eight Hundred and Thirty-Eight only) inclusive of Cess against M/s Adept, 2/148, Vishal Khand, Gomti Nagar, Lucknow under proviso to Section 73 (1) of the Finance Act, 1994, read with Section 173, 174 142 of Central Goods Services Tax Act, 2017 (hereinafter referred as CGST Act ); (2) I also demand and confirm interest due thereon a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1 11796456 2016-17 By Opration and Maintenance Charges 9473324 Supply of Diesel (Rs.18,49,19,554/-) Less Cost of Diesel (Rs. 1 8,06,08,766/-) 2049048 Interest on FD 79930 Sub Total-2 1,16,02,302 2.3 On examination of the ST-3 Returns and Service Tax payment challans for F.Y.2015-16 and F.Y.2016-17, it was observed that the Party, on their self-assessment, considered following figures as Taxable Value for payment of Service Tax during said years:- F.Y. Taxable Value (in Rs.) Service Tax paid (in Rs.) 2015-16 7325300 1032843 2016-17 9473325 1410244 2.4 Upon reconciliation of the figures of income reflected in P L Statements vis- -vis the figures of gross taxable value considered by the Party for payment of Service Tax on self-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com tower site of the recipient. For the same they received agreed diesel charges. The supply of diesel has no connection/relation with the above output services. In any case, the recovery of diesel charges is almost on a cost to cost basis. Further, the supply of diesel is a supply of goods. Therefore, the same is outside the purview of service tax. Apart the above services and supply of diesel, the Appellant, during the period of dispute, also provided mobile DG Sets for rent to the company in case of malfunctioning of the DG Sets installed at the tower sites of the company. The appellant received agreed rental charges for the mobile DG sets arranged by the Appellant. The Appellant has paid applicable service tax on provision of such rending service. This fact is also not in dispute Department issued a notice dated 12.03.2019, the whereby, it was alleged that upon scrutiny of ST-3 returns for the period FY 2014-15 to 2017-18 (upto June 2017), total service tax dues against the appellant is Rs.4,68,552/- Therefore, it was requested to pay the same along with interest. Thereafter, based on the information received from the Income Tax Department, a show cause notice dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018-TIOL-76-SC-ST. In that case, the Hon'ble Delhi High Court held that Section 67(1) of Finance Act, 1994 can include in the value of taxable services only and nothing else (to be read in consonance with Section 66). It was further, observed that it is inbuilt mechanism to ensure that only taxable service shall be evaluated under Section 67, where under value of taxable service is gross amount charged by service provider for such service'. Accordingly, it was concluded that expenditure/costs such as air travel, hotel stay, etc. incurred for service provided shall not be includible in gross amount charged under taxable head of consulting engineer service. the recovery of diesel charges by the appellant is nothing but a reimbursement. The slight deviation in the recovery is on account of discounts obtained at the time of procurement and price escalation. This cannot be a reason to discard the submission of the Appellant. The intention and the understanding of the parties is and has always been the recovery is on a cost to cost basis. In fact, the company/customer has even endorsed a certificate in favor of the appellant certifying that the recovery of diesel charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellants are not liable to pay service tax on the material component, as held by the Ld. Principal Commissioner. Kindly see; Godfrey Phillips India Ltd. [2005 (139) STC 537] show cause notice has been issued pursuant to audit conducted by the department. It is well settled that when an allegation is based on an audit observation / objection, there cannot be any allegation of suppression on the part of the appellants. In support of the same the Appellant relies on the case of Graphite India Limited 2018-TIOL-1028 (Para 6). Thus, there cannot be any allegation of suppression on the part of the Appellant. Hence, the show cause notice being entirely time barred is liable to be dropped forthwith. extended period of limitation is not invokable in the present case as there was no suppression of facts with intent to evade payment of service tax. A show cause notice No.425/AC/CGST/D-III/TP.14-15/LKO/2019-20 dated 08.11.2019 for the period 2014-15 was issued to the appellants. Therefore, this is a periodical show cause notice. The appellant submits that when earlier show cause notice has been issued, second show cause notice cannot be issued invoking extended period. See: Niza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement the Party was required to provide Operation and Maintenance services at various telecom towers sites wherein, they performed all activities required to always keep the telecom tower/infrastructure, installed at those sites, In working condition without disruption in telecom services, including the activities of filling of diesel in DG sets installed at those sites. AS per Section 67(1)(i) of the Finance Act, 1994, value for the purpose of payment of service tax is the gross amount charged by the service provider for such service provided including any reimbursement expenditure Or Cost incurred and charged. In the course of providing Or agreeing to provide taxable service. As per Rule 5(1) of Service Tax (Determination of Value) Rules, 2006, all the expenditures or COSts incurred by the service provider in the Course of providing taxable service shall be treated as consideration for the taxable service provided and the same shall be included in the value for the purpose of charging service tax. However, if the expenditure or COSts are Incurred by a service provider as Pure Agent of service recipient under the provisions of Rule 5(2) ibid. satisfying all conditions given the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The entire consideration Is received by the Noticee in money The provisions of Valuation Rules cannot apply in a case covered by Section 67(1)(i) ibid which is applicable in the instant case. The diesel cost is not an expenditure or ibid cost cannot incurred be by invoked the Noticee in the course of providing taxable service, hence, Rule 5(1) The Noticee further contended that present transaction of supply of goods is excluded from the definition of service and no service tax can be demanded on value of diesel i.e., goods The Noticee also contested that audit report cannot be the sole basis for demand of service tax as there is no independent inquiry and demand is based on EA-2000 Audit only which is not permissible in law. The Noticee also contested the demand of tax on the ground that the SCN has been issued, without authority of law, invoking provisions of section 73(1), 75, 77, and 78 of the repealed / omitted Finance Act, 1994 and provisions of Section 174 of CGST Act, 2017, have no saving provisions in such manner that fresh proceedings could be initiated in exercise of powers under the erstwhile provisions. The Noticee also contested the instant demand of service tax for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsure or from round cell the sites, clock timely monitoring informing and all the concerned including OEM for routine checking and maintenance of all listed passive infrastructure assets, Viz DG Sets, Air Conditioners, Servo Stabilizers etc. During the course of such operation and maintenance the Party was also solely responsible to carry out required diesel to filing ensure activity services on all during DG 24 sites hrs. or X listed sites shared by VNL. The Party was 7days on all days of the calendar year irrespective of Sundays a holidays The Party was also required to ensure that minimum diesel balance in tank of DG Sets shall be maintained. The Party was also under obligation for many activities as provided under the agreement. 6.6. The Party was to provide daily diesel filling report site wise in the mutually agreed format. Fortnightly diesel fling debit notes with reference to fund provided for diesel filing and actual consumed at site (as per fixed matrix provided by VNL) needed to be settled. 6.7. Thus, it was observed that the Party was not only providing operation and maintenance service at various power sites, but the scope of such service also included various ty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DS only on service charges paid under Section 194C of the Income Tax Act and not on the value of diesel supplied and the Act restricts the deduction of TDS on sale. 6.11. On the basis of the allegations in the Show cause Notice and the defense reply submitted by the Party, 1 observe that the main contention of the Party in their written reply is that supply of diesel for DG Sets at Telecom Tower sites cannot be treated as service and that it is simply sale of diesel i.e., trading of goods which is outside the purview of Service Tax. 6.12. I have to therefore examine, if the activity of supply of diesel by the Party is part of taxable activity or is a distinct activity independent from the operation and maintenance service being rendered by the Noticee. I have also to examine, if the value of the diesel so supplied by the Party is part of the taxable value or not under the provisions of Finance Act, 1994 and Rules made thereunder. 6.13. In order to examine if the activity of diesel filing by the Party is part of the taxable activity or not, it is important to discuss the relevant clauses of the service agreement between the Party and the service recipient namely VNL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Power Plant, Battery Banks, Aviation Lamps and cable, lightning arrester, all power cables and wires, ACDB, MCBs, electrical installation, Fire Alarm system, DCEMs, ACEMs, FCU, TOC installations and sensors, housekeeping in and around the shelter, DG and VNL premises, fuel economizers, fuel cells, invertors etc. (The list is indicative and not restricted to this), as per periodic schedule. Scope for Diesel Filling on DG Sets at Sites The Service Provider shall be solely responsible to carry out diesel filling activity on all sites or list of sites shared by VNL. The service provider ensures services during the DG 24 hrs X 7 days on all days of the calendar year irrespective of Sundays and holidays. The Service provider shall ensure that minimum diesel balance in tank (as decided by the circle O M head) shall be maintained. The service provider shall ensure while doing Diesel Filing Activity there should be no damage to DG or any other equipment at site. The Service Provider shall always ensure there should not be any damage to the premises Or the passage provided by the landlord or neighbours. The Service provider has to ensure that any diesel filling reports are not sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be solely responsible to carry out diesel filing activity on all the DG sets. The service provider shall ensure services during 24 hrs x 7 days in all days of the calendar year irrespective of Sundays and holidays. The service provider shall ensure that minimum diesel balance in tank shall be maintained. 6.15. I have thoughtfully considered various clauses of the agreement and I observe that the Party is basically engaged in operation and maintenance of telecom towers owned by the service recipient. also take note that the Passive Infrastructure required for proper functioning of telecom towers includes diesel generator set. I also take note that in order to provide uninterrupted supply of services of telecom towers, DG Sets have been installed and the maintenance of such DG Sets is also a pre-condition of the service agreement. The Party also gets the service charges for such maintenance. The scope of work also includes that the parties shall ensure diesel filing activity with utmost safety at sites as mentioned in the agreement. It is 15 also a the duty of the Party to ensure the minimum balance of the diesel in considered the tanks opinion of DG that Sets DG SO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e service provider acts as a pure agent of the recipient of service when he makes payment to third Party for the goods or services procured; (ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service; (iii) the recipient of service is liable to make payment to the third Party; (iv) the recipient of service authorizes the service provider to make payment on his behalf; (v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third Party, (vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service; (vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third Party; and (viii) the goods or services are procured in by the service provider from the third Party as pure agent of the recipient service are in addition to the services he provides on his own a account. Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine as to whether in the facts and circumstances of the case, supply of diesel can be treated as sale of goods. I observe that the Party has raised the debit notes upon the service recipient for recovering the cost of diesel. The description given by the Party to these debit notes is- debit note Nos. of Site of VIOM (W+Q) Diesel Filing Cell Sites in UPE state (description of sites) as per consumption sheet. I thus find that it is not the actual cost of diesel which has been recovered by the Party from the service recipient, but rather the Party has recovered the amount for diesel consumed during the course of providing operation and maintenance services including diesel filing in DG sets. Further, this amount is not on actual cost basis. I also observe that no sale bill has been issued by the Party. I also take note that the Party has not taken pains to produce evidence that the diesel was sold by them to the service provider as a trader. Rather, the facts and documents on record proves beyond doubt that the Party has recovered the amount for diesel (much (much higher than the actual cost incurred by them as is evident from P L A/c) consumed during the course of providing servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Service Tax, Kolkata 2017 (3) GSTL 429 (Tri. Kolkata) wherein Hon'ble Tribunal observed and held as under: - Valuation (Service Tax) - CHA services - Service Tax payable on gross amount received which includes amount received before, during or after service Reimbursable expenses and commission not to be excluded from taxable value if assessee not a pure agent - Section 67 of Finance Act, 1994. 6.25 With reference to the quantification of the service tax amount liable to be confirmed, observe that the party was claiming reimbursement of the expenses incurred against the cost of diesel consumed from VNL. In this context, it is important to mention the landmark judgment passed by the Hon'ble Supreme Court in case of M/s Intercontinental Consultants Technocrats Pvt. Ltd. Vs. UOI, whereby the court has laid down that the reimbursements shall be taxable under service tax and accordingly with effect from 14th May 2015 (with prospective effect), the reimbursements came under purview of service tax. Because of the same, one Debit Note dated 27.04.2015 has not been taken into consideration while calculating service tax liability of the party. For this reason, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service. 18. The agreements in the three Appeals are almost similar in nature. The terms of the agreement dated 27 April, 2010 entered into between M/s Bharti Infratel Limited and M/s Ganpati Associates can, therefore, be examined. Clause 2 of the Agreement deals with Appointment, Clause 3 deals with Delivery of Services, while Clause 4 deals with Service Charges and Payment. Clause 2.1 provides that the service provider has been appointed for providing services as detailed in Annexure A. Clause 3.1 provides that the service provider shall at all times deliver the services under the agreement as detailed in Annexure A through its own resources, men and materials based on the requirements spelt out by INFRATEL from time to time. Clause 4.1 provides that the service charges for the services shall be set out in Annexure A. 19. It has therefore become necessary to refer to the terms set out in Annexure A. 20. The fees indicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical team shall provide the list of site with the detailed LPH consumptions. Service provider shall fill the diesel at site as per the daily consumptions. Service provider shall update site status to Bharti nominated officials on a daily basis. Service provider shall ensure that there is no shortfall of diesel at any of the sites. In the event of any loss(s) incurred by Bharti for any site going down (becoming un-operational) due to shortfall of diesel, vendor shall be liable to pay for the damages incurred by Bharti on this account as per the damage/ penalty clause. Service provider will submit comprehensive MIS report for each site with the bills. Cleanliness of the DG area shall be the responsibility of the vendor. The vendor supervisor will be responsible for entire diesel filling operation at site including the quality/quantity/ safe locking of DG canopy and ensuring that all the locking device are in place including all inbuilt locks, bolts etc. including auto tower sites. In no case any lock/boiling locking device is to be broken or tempered. Purity of diesel. Service provider has to ensure the purity and quality of diesel being filled at site. If ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the appellant has to raise bills after 7 days as per diesel consumption chart and the payment has to be made within 10 days. The agreement further stipulates that the service provider will fill the diesel as per the laid down process and ensure that the DG sets have adequate diesel at all times. The service provider is also required to keep track of diesel consumption and the number of hours DG sets run site wise. The diesel has to be procured from Bharti authorised filling stations and the payment mode is also described in Clause 33 of the agreement. 26. It would thus be seen that in respect of diesel filling services, the appellant was entitled to receive two amount from the service recipients. The first was for the service charges per site for filling of diesel and for this purpose the appellant was required to raise service invoice on the service recipient. The second amount was for reimbursement in respect of value of diesel procured from the authorised filling stations for which a separate document was issued by the Appellant. The Appellant has placed the bill issued in the month of December 2011 that raises an invoice for Rs.3,11,929/- in which Rs.1,16,000/- is towa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and declared Rule 5 to be ultra vires the provisions of Section 66 and 67 of the Act. The High Court noted that both the amended and unamended Section 67 authorised the determination of value of taxable services for the purpose of charging service tax under Section 66 as the gross amount charged by the service provider for such services provided or to be provided by him in a case where consideration for such service is money. The High Court placed emphasis on the words for such service and took the view that the charge of service tax under Section 66 has to be on the value of taxable service i.e. the value of service rendered by the assessee and the quantification of the value of service can, therefore, never exceed the gross amount charged by the service provider for the service provided by him. On that analogy, the High Court opined that the scope of Rule 5 goes beyond the scope of Section 67 which was impermissible as rules could be framed only for carrying out the provisions of Chapter 5 of the Act. In taking this view, the High Court observed that the expenditure or cost incurred by the service provider for providing the taxable service can never be considered as the gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Supreme Court in Bhayana Builders. Section 67 either prior to its amendment or subsequent to its amendment was interpreted by the Supreme Court and it was held that the cost of free supply of goods provided by the service recipient to the service provider is neither an amount charged by the service provider nor can it be regarded as a consideration for the service provided by the service provider. The Supreme Court further held that on first principle also a value which is not a part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider. The Supreme Court also repelled the contention of the Revenue based on Explanation (c) to sub-section (4) of Section 67 that payment received in any form and any amount credited or debited as the case may be is to be included for the purposes of arriving at a gross amount charges and is leviable to service tax. Paragraphs 12, 13, 14, 15 and 16 dealing with this aspect are reproduced below: 12. On a reading of the above definition, it is clear that both prior and after amendment, the value on which service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient in respect of such goods/materials. This further gets strengthened from the words 'for such service provided or to be provided' by the service provider/assessee. Again, obviously, in respect of the goods/materials supplied by the service recipient, no service is provided by the assessee/service provider. Explanation 3 to subsection (1) of Section 67 removes any doubt by clarifying that the gross amount charged for the taxable service shall include the amount received towards the taxable service before, during or after provision of such service, implying thereby that where no amount is charged that has not to be included in respect of such materials/goods which are supplied by the service recipient, naturally, no amount is received by the service provider/assessee. Though, subsection (4) of Section 67 states that the value shall be determined in such manner as may be prescribed, however, it is subject to the provisions of sub-sections (1), (2) and (3). Moreover, no such manner is prescribed which includes the value of free goods/material supplied by the service recipient for determination of the gross value. 14. We may note at this stage that Explanation (c) to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice provider. 16. In fact, the definition of gross amount charged given in Explanation (c) to Section 67 only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term gross amount charged to enable the Department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered. The fact that it is an inclusive definition and may not be exhaustive also does not lead to the conclusion that the contract value can be ignored and the value of free supply goods can be added over and above the contract value to arrive at the value of taxable services. The value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient. The service recipient can use any quality of goods and the value of such goods can vary significantly. Such a value, has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free of cost supplied by the service recipient to the service provider, no service tax can be levied on it in view of the decision of the Supreme Court in Bhayana Builders. The impugned order proceeds on the footing that diesel is an input required for provision of the output services. This is a completely wrong impression as the diesel filling is the service for which a separate consideration has been provided in the contract and diesel cannot be considered as an input for the provision of this service. What further needs to be noted is that the total amount raised in the Bill issued in the month of December, 2011 is Rs.1,16,000/- towards filling of diesel at 125 sites, while the reimbursement claimed by the Appellants towards value of diesel is Rs.49,95,668/-. The Department is seeking to levy service tax on this value of diesel as according to it, the Appellant has used the diesel as input for providing the service. 4.4 In view of the decision of the CESTAT on the same issue we are not inclined to uphold the impugned order. Since we are not holding the issue on the merits we do not render the findings on the other issues of limitation etc. in this case. 5.1 Appeal is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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