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TMI Blog2024 (8) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the entire case of the Revenue is based on Rule 5 (1) 5(2) of Service Tax (Determination of Value) Rules, 2006, it is found that this Rule 5 (1) has been held unconstitutional as the same ultra vires the provision of section 66 and 67of the Finance Act, 1994, therefore, on this change of legal position the entire action of the revenue is vitiated. Consequently, the order of the Commissioner (Appeals) is also not sustainable on this ground alone. In the present case, the advertisement is in the business interest of the franchisee but the arrangement of advertisement is such that the advertisement agencies are providing advertisement for the franchisee and the payment therefore is made by the appellant and the same is collecting as reimbursement from the franchisee - The advertising expenses is ultimately borne by the franchisee because the same is part of their business expenses, the same cannot be included in the gross value of franchise service. The impugned order allowing the revenue s appeal is not sustainable in law and in the fact. Hence, the same is set aside - Appeal allowed. - MR. RAMESH NAIR, MEMBER (JUDICIAL) And MR. C L MAHAR, MEMBER (TECHNICAL), Shri Dhruvank Pari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the gross value in respect of franchise service. The Revenue being aggrieved by the Order-In-Original, filed an appeal before Commissioner (Appeals) who vide impugned order dated 24.012015 allowed the revenue s appeal interpreting Rule 5 (1) of Service Tax (Determination of Value) Rules, 2006. Therefore, the present appeal. 2. Shri Dhruvank Parikh, Learned Chartered Accountant appearing on behalf of the Appellant at the outset submits that the entire order of the Commissioner (Appeals) is based on Rule 5 (1) of Service Tax (Determination of Value) Rules, 2006. The Hon ble Supreme Court in the case of Intercontinental Consultants Technocrats Pvt Ltd in Civil Appeal No. 2013 of 2014 upholding the ruling given by the Hon ble Delhi High Court whereby treating Rule 5 of Service Tax (Determination of Value) Rules, 2006 as unconstitutional as well as ultra vires, the provision of 66 and 67 of Chapter v of Finance Act, 1994, therefore, the entire order based on rule 5 which held ultra vires, the order will not sustain. 2.1 He further submits that the advertisement charges was collected from the franchisee as reimbursement because the said amount was paid to the advertisement agenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the franchisees on their own but as per the arrangement , the appellant are making payment of advertisement charges to the advertisement agencies and taking reimbursement from the service recipient, therefore, advertisement charges is not a part and parcel of the value of franchise service. Relevant para of the adjudication order is reproduced below:- 22. Further, I find that Rule 5(1) of Valuation Rules, specifies that the expenditure or costs incurred by the service provider in course of providing taxable services are to be treated as consideration for the taxable services provided. In terms of these Rules, the costs incurred by the noticee for providing such advertisement services is to be considered as taxable services. As discussed above, it is not under dispute that the advertisement services were not being provided by the notice but were being provided by various advertising agencies. Thus, expenses for advertising were incurred by various advertising agencies and the noticee had paid to the said advertising agencies on behalf of the franchisee and subsequently collected reimbursement from its franchisees for such expenses. It is to be seen that whether such reimbursements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement, the amount of budgetary expenses would cost upto Rs. 12 lakhs per annum, in the above case. In different franchisees, the estimated budgetary expenses mentioned in agreements for such advertisements is different. The Show Cause proposes to treat this amount as additional consideration since it was received by the noticee from their franchisees. The noticee in their contention have stated that the advertisement agencies have advised them to have one single point of collection of amount of advertisement and also showed that collective advertisement would be cheaper and would be in the interest of their company as well as the participant Franchisee Centers and that's why they decided to pay at a stretch from their own pocket first the amount pertaining to advertisement for all the Franchisee Centers and then claim a reimbursement of the same from the franchisee Centers. They have further contended that the said model of doing business was in the interest of them as well as the Franchisee Centers who mutually on large scale got the benefit of operating through the Cost Sharing Model by way of pooling of common resources required for expansion and promotion of the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees in the name of Advertisement Charges. However they have failed to pay the Service Tax on the Advertisement Charges despite the clear provisions of Rule 5(1) of the Service Tax(Determination of value) Rules, 2006. Thus I find Department is quite justified in putting forth the plea that in view of clear mandate of Rule 5(1) of Service Tax(Determination of value) Rules, 2006 , any expenditure or costs which are incurred by the service provider in the course of providing taxable services are to be included in the value for the purpose of charging service tax on such services and I allow the Departmental plea on this point. 4.3 In view of the above, we find that right from show cause notice upto the Commissioner (Appeals) order, the entire case of the Revenue is based on Rule 5 (1) 5(2) of Service Tax (Determination of Value) Rules, 2006, we find that this Rule 5 (1) has been held unconstitutional as the same ultra vires the provision of section 66 and 67of the Finance Act, 1994, therefore, on this change of legal position as per the Hon ble Apex Court judgment, the entire action of the revenue is vitiated. Consequently, the order of the Commissioner (Appeals) is also not sustainabl ..... 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