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TMI Blog2024 (8) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the appellant. The expenses incurred by the Appellant towards consumables, which are reimbursed on actuals by service recipient, are not towards any service provided by the Appellant. The consideration or gross amount charged for the MMR Service of property (mall) is the management fee charged by the Appellant, on which service tax has already been paid by the Appellant. Hence, the said amount cannot be subject to service tax. There is nothing on record to show that any of the purchase remained unutilized and reverted to the appellant. There is no denial to the fact that the appellant recovers only the amount which has been paid on behalf of the recipient of service that the appellant only charges the cost of consumables and does not recover anything over and above the cost incurred by the appellant for the procurement of the said goods. The expenses incurred in procurement of consumables is recorded as cost/expense, while the amount reimbursed by the service recipient is recorded as income - in case of Bhayana Builders [ 2018 (2) TMI 1325 - SUPREME COURT ] establishes that the amount reimbursed for the goods used in providing MMR service does not quality to be called as cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service falling under Section 65(105)(zzg), (e) and (b) respectively under the Finance Act, 1994 (hereinafter referred as the Act). The audit of appellant s records was conducted. During the course of audit, it was observed from the other income statement that appellant had received reimbursement from their clients under various heads. However, they had treated the said reimbursed amount as being received under the head for consumable/equipment and other, as non-taxable, and had not paid service tax on the same. It was observed that the appellants had incurred various expenditures on items such as cleaning material, pest control, equipment etc during the course of providing the MMRS. The appellants had charged their clients for such expenditure and had also been reimbursed for the same by their clients. Scrutiny of the invoices pertaining to such consumable also revealed that the appellants had not charged the Service Tax on consumable from their clients. The Appellants explained vide their letter dated 11.01.2012 that they bought these consumables on behalf of their clients on pure agent basis for which only the cost of consumables was recovered from the clients, and provided the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the vendors are recovered from the mall owners on cost-to-cost basis. There is no separate service except management of the services provided by the vendors at the mall sites being provided by the Appellant. Appellant charges a management fee for the above stated services, on which due Service Tax is being paid on regular basis and there is no dispute in this respect. 6. Under the said agreement, the Appellant is also working as an arranger of the consumables utilized by the maintenance staff while maintaining the property of ECPCPL. All the consumables supplied by the vendors are directly being purchased by the Appellant on behalf of ECPCPL and the cost of the same is being reimbursed by ECPCPL and there is no element of profit involved in it. The recovery cost of the same is not the part of the gross value of management service provided by the Appellant as both are distinct activities. The consumables are directly received by the ECPCPL/service recipient at its place and kept under his custody and in turn issued to the maintenance staff by them only. Further, the Appellant is not entitled to take out said consumables from the premises of ECPCPL. 7. Ld. Counsel further submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the amount reimbursed are sought be taxed without even determining the taxable category of services. Further, what has been taxed is the value of goods. Also, the Appellant has provided all the data as and when required by the Department. For this reason, no suppression can be alleged and the demand is time barred till September 2010.. With these submissions the order under challenge is prayed to be set aside and appeal is prayed to be allowed. 12. While rebutting these submissions, ld. DR has mentioned that as per Section 67 of the Act gross amount means all amount charged and received during the provision of the taxable service, and the Appellant has charged all components of consideration in lump sum namely management fee for all purchases made for clients during the provision of MMR Service. Thus, exclusion of amount towards reimbursable expenditure is not sustainable and same is susceptible to Service Tax. Since various charges billed by the Appellant have nexus with MMR Services, as per Rule 5 (1) of the Determination of Value Rules, 2006 same will form part of taxable value. 13. Ld. DR further submitted that the Appellant has also not fulfilled the conditions prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be reimbursed all expenditure on actual cost basis incurred on the outsource agencies or incurred over the material purchased for the maintenance of the equipment Mall. The Appellants were allowed to outsource. Maintenance service to specialized agencies but they were responsible for its performance. 2. Similarly, for managing maintaining Malls of E-City Projects Constructions (P) Ltd. agreement dated 1st April, 2008 required appellants to arrange all necessary consumables at their own cost expenses same was to be re-billed to other party the items should be of necessary certification. The items were thus needed for maintenance management by appellants the items were not specified by other party, the same were to be decided by appellants as per requirement of appellants. Further, such goods were used by appellants only. 17. It is further observed that the modest operation of the facilities against the maintenance of malls is that appellant (EPMS) arranges the various services at different malls being provided by different vendors at the sites and in turn gets the fixed management fee as its service charges against the same. The cost of the facilities provided by the vendors are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein it is held as follows:- 12) On a reading of the above definition, it is clear that both prior and after amendment, the value on which service tax is payable has to satisfy the following ingredients: a. Service tax is payable on the gross amount charged:- the words gross amount only refers to the entire contract value between the service provider and the service recipient. The word gross is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word gross the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word charged , it is clear that the same refers to the amount billed by the service provider to the service receiver. 20. Therefore, in terms of Section 67, unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining the value on which service tax is payable. b. The amount charged should be for such service provided : Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders (Supra) establishes that the amount reimbursed for the goods used in providing MMR service does not quality to be called as consideration of section 67. Hence no tax liability arises on this count. 24. We further observe that SCNs have been issued invoking Rule 5 of value Determination Rules, 2006. 25. The only reason for which the Department sought service tax on the amounts reimbursed to the appellant by the client is that the Appellant did not fulfill the conditions laid down in Rule 5 (2) and clause (c) to the Explanation-1 to Rule 5 (2) of the Determination of Value Rules to qualify as a pure agent. 26. It is further clarified in sub-rule (2) of Rule 5 of the Valuation Rules, it has been prescribed that expenditure or cost incurred by the service provider as a pure agent of the service recipient shall be excluded from the value of taxable service, if conditions of the said Rule are satisfied. 27. It is observed that under Explanation-1 (c) to Rule 5 of the Valuation Rules, which deals with the inclusion or exclusion of certain expenditure or costs from the value of services, it has been clarified that a pure agent means a person who 'does not use such goods or service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e can be brought to charge. The High 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 provided by the service provider can be valued and assessed to tax. The High Court concluded that the provisions of Rule 5(1) of the valuation Rules are repugnant to Sections 66 and 67 of the Act since the provision purport to tax not, what is due from the service provider under the charging section, but seeks to extract something more from him by including in the valuation of the taxable service other expenditure and costs which are incurred by the service provider in the course of providing taxable service. 29. Thus, in view of the above law laid down by the Hon'ble Delhi High Court, recovery of expenses cannot be considered as income for any service rendered. It is further submitted that The Special Leave Petition (SLP) before the Hon'ble Apex Court was filed by revenue against the abovementioned ruling of the Delhi High Court. The Hon'ble Apex Court has upheld the ruling of the Delhi High Court, in the case of Union of India and Anr. v. M/s. Intercontinental Consultants and Technocrats Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider. 29) In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with 'consideration is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the learned counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voke proviso to Section 11A of the Act. It also appears from that decision that this Court also held that if any classification was due to mis-interpretation of the classification list, suppression of facts could not be alleged. From this judgment, it is therefore clear that since the Excise authorities had collected samples of the products manufactured by the appellant and inspected the products and the relevant facts were very much in the knowledge of the Excise authorities and nothing could be shown by the Excise authorities that there was any deliberate attempt of non-disclosure to escape duty, no claim as to suppression of facts could be entertained for the purpose of invoking the extended period of limitation within the meaning of proviso to Section 11A of the Act. 34. We also rely upon the decision of the Hon ble Supreme Court in the case of Uniworth Textiles Limited vs. Commissioner of Central Excise reported in 2013 (288) ELT 161 (SC). 35. Hon ble Supreme Court in the case of Union of India v. Ashok Kumar and Others, 2005 (8) SCC 760 has held as under:- It cannot be overlooked that burden of establishing mala fides is very heavy on the person who alleges it. The allegation ..... 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