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TMI Blog2024 (8) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 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. Thus, on first principle itself, a value which is not 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. An amount recovered or recoverable as per the agreed terms between two persons will only form 'consideration' for a service. Any amount proposed to be charged by one person but is not agreed to be paid by the other person in lieu of services, will not be part of 'consideration'. It is apparent that the value considered by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Excise by CESTAT, Chandigarh [ 2024 (2) TMI 15 - CESTAT CHANDIGARH ] followed where it was held that ' The appellants have thus grossed up the TDS and complied with the statutory obligation. The situation would be different if the TDS is deducted from the actual consideration and is not borne by the Indian counterpart. When the foreign counterpart does not agree to forego the TDS portion from the consideration agreed, then it becomes legally incumbent upon the appellant to gross up the value as under Section 195A. Thus, the amount of TDS was not supposed to be included in the gross value received by the appellant for providing Consultant Engineer Service to NHAI otherwise also tax on TDS also has been paid except when the amount was refunded to NHAI owing to losses - the allegations and the confirmation thereof that the tax paid by appellant is short for not including the amount of TDS are, therefore, not sustainable. Denial of Cenvat credit alleging it to have been availed without documents - HELD THAT:- The adjudicating authority has relied upon Rule 9 (6) and Rule 9 (9) of Cenvat Credit Rules, 2004, while holding that the Cenvat Credit has been availed based on improper i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and involving same issues. The apparent details of both the appeals is: Sr. No. Appeal No. SCN No. Period of SCN No. OIO No. OIA No. 1. ST/51632/2017 104/Commr./ST/ADJ/ JBP/2014 dated 15.10.2014 2009-10 to 2013-14 36-37/Commr/ST/ JBP/2017 dated 28.03.2017 867-17-18 dated 27.03.2018 95/JC/ST/JBP/2015-16 dated 17.03.2016 2014-15 2. ST/52279/2018 32/RSAP/AC/ JBP/2016-17/1346 dated 28.03.2017 2015-16 36-37/Commr/ST/ JBP/2017 dated 28.03.2017 2. The facts culminating into these appeals are as follows:- The appellant is registered for discharging service tax liability for rendering Consulting Engineer Services . During the course of audit of appellant s record by Internal Audit Branch of Central Excise Commissionerate, Bhopal, the department observed that the appellant is providing the said services to National Highway Authority of India (herein after referred as NHAI), but had not filed the ST-3 Returns for the year 2013-14. The invoices issued during the said year were therefore checked and it was observed that the appellant has charged amount in Indian Rupees as well as in US dollars from their clients in lieu of rendering Consulting Engineer Services . The invoices were showing ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3,12,144/- (iv) In addition, the interest at appropriate rate in terms of Section 11AB/11AA and imposition of penalty under Section 76, 77 and 78 of Service Tax Rules as well as in terms of Rule 15(1) and (3) of Cenvat Credit Rules, 2004 was proposed. (v) service tax amounting to Rs. 30,900/- under reverse charge mechanism for receiving legal consultancy service (vi) amount of 39,528/- and 35,265/- for the financial year, 2012-13 and 2013-14 2.4 Show cause No. 95/2015-16 dated 17.03.2016 has proposed DEMAND as follows:- (i) Service Tax of Rs. 45,35,673/- for the period 2014-15 (ii) Service tax amounting to Rs. 34,964/- (iii) the interest at applicable rate on the amount of service tax so confirmed (iv) the penalty under section 76, 77 and 78 of the Finance Act 1994 (v) the amount of 1,44,638/- as was already deposited by the appellant on 24.08.2015 was proposed to be appropriated. (vi) service tax amounting to Rs. 33,946/- on rent a cab service received by the appellant during the financial year, 2014-15 2.5 On the same set of facts and circumstances, In Appeal No. ST/52279/2018, SCN dated 28.03.2017 following demand was proposed. (i) Service Tax short paid on gross amount to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d cost authorizations. It is mentioned that Article 6 of the contract between the parties talks about said mode of payment. Thus, the amount received by appellant is the amount which is approved by NHAI after reconciling the itemized monthwise statements adequately supported by the documents instead of it being the amount shown in the invoice. It is on this amount received after approval that the appellant has regularly discharged its liability. The Department has wrongly considered the amount mentioned in the invoice as the taxable amount or gross amount. In terms of the impugned agreement between the parties, the invoice raised by appellant is nothing but a performa invoice. The appellant has impressed upon the sample itemized statement for the period in dispute and also upon Point of Taxation Rules. It is submitted that the consideration for rendering the Consultant Engineers Services to NHAI is an amount paid by NHAI to the appellant. The amount proposed by the appellant to be recovered from NHAI since was subject to approval of NHAI it has wrongly been assumed as transaction value hence cannot be called as consideration for the impugned service. The decision of Hon ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation.-For the purposes of this section,- (a) consideration includes- (i) any amount that is payable for the taxable services provided or to be provided; (ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed; (iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket. (c) gross amount charged includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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. Thus, on first principle itself, a value which is not 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. 10. Hon ble Apex Court in the case Bhayana Builders (supra) has put at rest the interpretation of word consideration and gross value and as to what constitutes the taxable value. The observation relevant for present purpose is be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as recharges between establishments located in a non-taxable territory on one hand and taxable territory on the other hand. A.9 From the conjoint reading of the provisions and the judicial pronouncement, it is clear that an amount recovered or recoverable as per the agreed terms between two persons will only form 'consideration' for a service. Any amount proposed to be charged by one person but is not agreed to be paid by the other person in lieu of services, will not be part of 'consideration'. A.10 It is pertinent to note that provision of 'service' is a contract in terms of Contract Act, 1872. Thus, the basic essential features of a valid contract have to be satisfied under a 'service' contract also. Consideration is the agreed amount which flows from the recipient to the provider of service. This principle applies to 'sale' contracts. The Hon'ble Supreme Court in the matter of Neywell Lignite Corporation Ltd. v. CTO 2001 (124) STC 586a (SC). 11. We also observe that Section 67 explanation (C) of Finance Act uses word gross amount charged and dictionary meaning of word charge is to be ask payment of (a person) i.e. to ask somebody ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contractual value which qualifies to be called as consideration of section 67 of Finance Act, 1944. Resultantly, we are of the opinion that the amount mentioned in the invoice raised by the appellant was the amount proposed as different from amount charged/paid. The department has failed to acknowledge as to how something can be recognized as income in balance sheet, which was never supposed to be treated as receivable from NHAI. It is an admitted fact that the amount paid by NHAI also includes grossed up amount, amount withheld and the amounts of remunerations but only those which were duly supported by the respective document and were approved by NHAI. Hence, department reliance upon Rule 7 of valuation rules and upon the amendment w.e.f. 01.04.2011 is redundant. The department failed to acknowledge as to how something can be recognized as income in balance sheet, which was never supposed to be treated as receivable from NHAI. 14. We also draw our support from the decision of Reliance Infratel Ltd. versus Commissioner of Central Excise, Thane II reported as 2016 (42) S.T.R. 452 (Tri. Mumbai), wherein it has been held as follows :- To qualify as gross amount charged there mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aying income tax was appellant s liability. Subsequently, the project was in loss in the FY 2014-15 and 2015-16. Resultantly the appellant was under obligation to refund the amount of TDS (as would accrue to it on account of TDS credit) to NHAI. Hence, the amount of TDS cannot be considered as appellant s income for the financial year 2014-15 and 2015-16. It is further mentioned that agreement between appellant and NHAI defines considerations as an amount exclusive of taxes . As already discussed above that this is an inbuilt mechanism to ensure that only the taxable service shall be evaluated under the provisions of Section 67, that on construing the provisions of Sections 66 and 67(1) (i) together and harmoniously, it is clear that the value of taxable service shall be the gross amount charged by the service provider; and nothing more and nothing less than the consideration paid as a quid pro quo for the service can be brought to charge. The Court further held that the common thread that runs through Sections 66 and 67 and 94 (the Rule making power), manifests that only the service actually provided by the service provider can be valued and assessed to t x. Hence TDS when it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be otherwise agreed under the General Conditions and Undertakings, and notwithstanding any other provisions of this Contract, payments under this Contract shall not exceed U.S. $ 2,090,200 (Exclusive of taxes) in foreign currency as determined in accordance with 6.11 (a) of the General Conditions and Undertakings, and Rupees 11,45,77,300 in local currency (Exclusive of taxes). Clause 13. Miscellaneous : (a) (b) The General Conditions and Undertakings, and Appendices A to F and other documents attached hereto, which including this Agreement collectively constitute this Contract (as defined hereinabove) are each integral and substantive parts of this Contract and are fully binding on each of the parties hereto as of the effective date of this Contract. 20. It is further observed that as per the terms relating to the tax reimbursements (in the form of TDS) in the Contract, the TDS deposited by the NHAI for the payments made to the Appellant was to be refunded back in case the Appellant did not utilize that TDS for the payment of taxes on the underlying project. Agreement recites minutes of meeting to be the part and parcel of agreement between the parties herein. Clause 12 thereof re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their Corporate Tax liability and personal Income Tax of their expatriate personnel. The said firm of Chartered Accountants will have complete access to all records of the Consultant that may be required as per statutory requirements. The said firm of Chartered Accountants will also assess the relative advantage/disadvantage of making assessments either under withholding tax provisions or a regular assessment made in the normal course under the Indian Tax Laws and decide on the option which entails least cost to NHAI. The Consultant agreed that they will ensure that NHAI is subjected to a liability which will be least cost to NHAI. (v) NHAI will have the right but not the obligation to appoint another firm of Chartered Accountants, for reviewing the audit and assessment done by the auditors as narrated in Para (iv) above, as a concurrent auditor or otherwise. The cost for such an appointment of the Auditors shall be borne by the Consultant. However, any such cost required to be borne by the Consultant will not exceed the cost incurred/to be incurred by the Consultant for the appointment of the firm of Chartered Accountants as specified in Para (iv) above . 21. We also observe, it a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the foreign counterpart and making payment, they are bound to deduct the tax and deposit with the Government. The appellants have thus grossed up the TDS and complied with the statutory obligation. The situation would be different if the TDS is deducted from the actual consideration and is not borne by the Indian counterpart. When the foreign counterpart does not agree to forego the TDS portion from the consideration agreed, then it becomes legally incumbent upon the appellant to gross up the value as under Section 195A . CESTAT, Chennai also in the case title as TVS Motor Company Ltd. versus Commissioner of Central Excise, Service Tax, Chennai III Commissionerate reported as 2021 (55) G.S.T.L. 459 has held as follows :- 14.3.3 The above application establishes that if the appellants fail to deduct the tax at source and remit the same to the Government, they would be subject to provisions of penalty under the Income-tax Act, 1961. Thus, activity of deducting tax at source is an obligation under the statute. When the TDS is grossed up and borne by the assessee and the service provider receives only the actual consideration agreed between parties, in our view, the TDS amount cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing to losses. In the light of this discussion, we hold that the allegations and the confirmation thereof that the tax paid by appellant is short for not including the amount of TDS are, therefore, not sustainable. The findings on both these issues are sufficient to held that the findings of Commissioner (Appeals) specifically in Para 9 thereof are not sustainable and are liable to be set-aside. Third Issue: Denial of Cenvat credit alleging it to have been availed without documents 25. Learned counsel for the appellant has mentioned that the allegations are vague baseless and that the finding arrived at by original adjudicating authority are grossly arbitrary. Invoices and ledgers of Cenvat credit were duly supplied to the department at the time of audit and later while replying to the show cause notice vide their letter dated 25.01.2017. The credit has been denied also for the reason that the Cenvat register is not maintained in the prescribed format. It is impressed upon that there is no provision which mandates or even prescribed any specific format for the purpose. The Cenvat credit is admissible on the strength of invoices. Otherwise also it is impressed as a revenue neutra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tantial benefit of availment cannot be denied based on procedural lapse. With these observations, the findings of denying availment of Cenvat credit to the appellant held to be liable to be set aside. Even the allegation that the invoices are just performa invoices has no relevance. Rule 9 (6) of CCR, 2004 has also been wrongly involved as it just mandate maintenance of records, that too not of invoices, but for receipt and consumption of input services. Similarly, Rule 9 (9) of CCR, 2004 talks about filing of half yearly return in a format duly specified by a notification. It also do not talk about any specific format for invoices. We further observe that Cenvat credit has been denied also for the reasons that the documents were not provided by the appellant. But it is on record that invoices and ledges of Cenvat credit were supplied to department on 25.01.2017 and were even provided during audit. The show cause notice could not have so mathematical details had the documents would not been provided. Forth Issue: The liability of appellant to pay service tax under reverse charge mechanism for receiving legal consultancy and rent a cab services Learned counsel for the appellant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @ 40% of the taxable value stands already discharged. Hence, this amount can be demanded or recovered again, however, has to be appropriated as appellant s liability under RCM to pay service tax for receiving legal consultancy and Rent-a-cab services. Fifth Issue: Invocation of extended period of limitation : 30. Learned counsel has reiterated the submissions that the appellant were discharging their service tax liability as per the agreement between the appellant and their service recipient. The said arrangement was statutory permissible. There was never any intention to evade any service tax. The generic statement that appellant has willfully suppressed the facts is not sufficient for invoking the extended period. The show cause notice is prayed to be set aside being barred by limitation. Learned counsel has relied upon the decision in the case of International Merchandise Company LLC versus Commissioner of Service Tax as decided by Hon ble Supreme Court in a civil appeal No. 3532-3536 of 2020 decided on 1st November, 2022. Reliance is placed upon the decision in the case of Punjab Technical University versus Commissioner of C.E. S.T., Ludhiana reported as 2016 (42) S.T.R. 474 (T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt thereof and that he has wrongly availed the Cenvat credit with intend to cause loss to the exchequer. 33. The mere verbal allegations about suppression of facts are not sufficient to invoke the extended period of limitation. The Hon ble Supreme Court in the case of Padmini Products versus Commissioner of Central Excise, Bangalore reported as 1989 (4) SCC (275) has held that extended period of limitation will not be attracted when the appellant has not acted with dishonest or fraudulent intent. With respect to invocation of amount of TDS since there is a scope of entertaining a doubt about the view to be taken the extended period of limitation cannot be invoked. We also draw our support from the decision of Hon ble Supreme Court in the case of Continental Foundation Jt. Venture versus Commissioner of Central Excise, Chandigarh I reported as 2007 (216) E.L.T. 177 (S.C.). We also draw our support from another decision of Hon ble Supreme Court in the case of Uniworth Textile Ltd. Versus CCE, Raipur reported as 2013 (288) E.L.T. 161 (S.C.) where the Hon ble Supreme Court has distinguished between mere default for which normal period of limitation is attracted and the circumstances fo ..... 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