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TMI Blog2024 (11) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... service in terms of Rule 5(1) of Service Tax Determination of Value Rules, 2006. Accordingly, the demand of service tax was confirmed on such expenditure. Being aggrieved by the said demand the appellant filed the present appeal. 2. Shri Vikas Agarwal, Learned Chartered Accountant appearing on behalf of the appellant at the outside submits that there is no dispute that out of the contract value the part of the value was unbilled which was not charged to the service recipient. As per Section 67, only the amount which is charged for the provision of service shall be taxable. Therefore, neither the part of the service was provided nor it was billed. Hence, the same was not charged to the service recipient, therefore, the same is not taxable. 2.1 He further submits that even the provision of expenditure made but the same has been written off subsequently, for this reason also when any amount towards service does not exist, the same cannot be charged service tax. 2.2 He submits that in the various following judgments including the judgment of Hon'ble Gujarat High Court in their own case, the issue has been settled and the same is no longer res-Integra:- * Union of India & ANR. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following order:- "[10] Having heard the learned advocates for the respective parties and having considered the facts of the case and the contents of the show cause notice, it is not in dispute that the show cause notice refers to differential value or amount of taxable service of Rs. 165,82,77,786/- pertaining to unbilled revenue of expenses or additional expenses incurred by the petitioner - assessee which was treated as part of consideration as per Rule 5 and Rule 2 (c) of the Rules read with Section 67 of the Finance Act, 1994. [11] The Hon'ble Supreme Court. in the case of Intercontinental Consultants and Technocrates Pvt Ltd (supra), referring to the provisions of Rule 5 of the Rules 2006, Rule 2(c) of the Rules, 2006 and Section 67 of the Finance Act, 1994, has held as under: "6. Rule 5 was brought into existence w.e.f. June 1, 2007. The demand which was made in the show cause notice was covered by the period from October, 2002 to March, 2007. Against this show cause notice, the respondent preferred Writ Petition No. 6370 of 2008 in the High Court of Delhi challenging the vires thereof with three prayers, namely: (i) for quashing Rule 5 in its entirety of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n addition to the services he provides on his own account. Explanation 1 : For the purposes of sub rule (2), "pure agent" means a person who - * enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service; * neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service; * does not use such goods or services so procured; and * receives only the actual amount incurred to procure such goods or services. Explanation 2 : For the removal of doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice. Illustration 1 : X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X including charges for Television advertisement and paid service tax on the total consideration billed. In such a case, consideration for the ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services shall be treated as consideration for the taxable services and shall be included in the value for the purpose of charging service tax, goes beyond the mandate of Section 67. It was argued that Section 67 which deals with valuation of taxable services for charging service tax does not provide for inclusion of the aforesaid expenditure or cost incurred while providing the services as they cannot be treated as element/components of service. Section 67 was amended by Finance Act, 2006 w.e.f. May 1, 2006. Since the cases before us involve period prior to the aforesaid amendment as well as post amendment period, it would apt to take note of both unamended and amended provisions. Unamended Section 67 was in the following form: ""67. Valuation of taxable services for charging service tax. For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such provided or to be provided by him. Explanation 1. For the removal of doubts, it is hereby declared that the value of a taxable service, as the case may be, includes, (a) the aggregate of commission or brokerage charges by a broker on the sale or purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any amount received towards the taxable service before, during or after provision of such service." 9. After its amendment w.e.f. May 1, 2006, a much shorter version was introduced which reads as under: "67. Valuation of taxable services for charging service tax. (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act) which provides for levy quantification and collection of the service tax. In the process, the High Court observed that the expenditure or cost incurred by the service provider in the course of providing the taxable service can never be considered as the gross amount charged by the service provider 'for such service' provided by him, and illustration 3 given below the Rule which included the value of such services was a clear example of breaching the boundaries of Section 67. The High Court even went on to hold further pointed out that it may even result in double taxation inasmuch as expenses on air travel tickets are already subject to service tax and are included in the bill. No doubt, double taxation was permissible in law but it could only be done if it was categorically provided for and intended; and could not be enforced by implication as held in Jain Brothers v. Union of India. The High Court has also referred to many judgments of this Court for the proposition that Rules cannot be over-ride or over-reach the provisions of the main enactment [Central Bank of India & Ors. v. Workmen, etc., (1960) 1 SCR 200; Babaji Kondaji Garad v. Nasik Merchants Co-Operative Bank Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as that amount is not calculated for providing such 'taxable service'. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in it was observed as under: "27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of "interpretation of statutes". Vis-à-vis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof. 28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show cause notice is contrary to the law laid down by the Hon'ble Supreme Court, as stated hereinabove, by holding Rule 5 of the Rules 2006 as ultra vires to Section 67 of the Finance Act 1994 and admittedly, the period involved in the impugned show cause notice is prior to 13th May 2015 and therefore, the decision of the Hon'ble Supreme Court would be squarely applicable in the facts of the present case. In such circumstances, the impugned show cause notice is without jurisdiction and this petition would be maintainable under Article 226 of the Constitution of India. [14] For the foregoing reasons, this petition succeeds and is allowed. The impugned show cause notice dated 31st October 2017 is hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No order as to costs." In view of the above judgment of the Hon'ble jurisdictional High Court which has relied on the land mark judgment of Hon'ble Supreme Court in the case of Intercontinental Consultants Technocrats Pvt. Ltd (Supra), it was held that the unbilled amount cannot be liable to service tax. The issue in the present case is squarely covered by the above judgment in the appellant's own case. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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