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TMI Blog2025 (1) TMI 1036X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the valuation of taxable service is nothing more nor anything less than the consideration paid for the service which alone is taxable and leviable to service tax. It is also evident from the combined reading of the two aforesaid sections that only service component provided by the supplier of service can be valued and assessed to service tax - For subjecting the value to tax, it is imperative that a distinction is accorded between reimbursement and remuneration which is a consideration for service delivery. In the case of Union of India vs. Intercontinental Consultants And Technocrats Pvt.Ltd. [ 2018 (3) TMI 357 - SUPREME COURT ], the hon ble apex court in the context of reimbursable expenses had even held Rule 5(1) to be ultra vires. It held that the Gross amount charged has to be ascertained with respect to deliveries for such service . From the facts of this case, it is quite clear that the charges for deliverance of Manpower Service in the present matter are separately indicated and are not contained in the salary i.e. required to be paid to the personnel made available to their clients by the respondent. Slew of cases have evidently held that reimbursement expenses are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clients since April, 2008. As a part of the business model, the respondent supplied manpower to various clients depending upon their requirement and in turn received reimbursement of actual amount of salary paid, from its clients. It is not disputed that the respondent in turn disbursed the salary etc. as received from its clients amongst the respective personnel deployed on actual basis and no margin or mark up from such amount was retained by the respondent. The respondent received service charges for the provisioning of 'Manpower Recruitment and Supply Service' on which appropriate Service Tax is discharged and is not the subject matter of the present appeal. The billing for the said service charges and the reimbursement expenses are done separately by the respondent. 4. The respondent were issued the aforesaid show cause notice in terms of section 73(1) of the Finance Act, 1994 alleging contravention of provisions of section 67, 68 and 70 of the Act read with Rule 6 & 7 of the Service Tax Rules, 1994, alleging evasion of Service Tax for an amount of Rs.1,06,41,600/- on the plea that the assessee had not paid Service Tax on the gross amount received from their clients while pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be treated as consideration for the rendering of the taxable service, provided or to be provided and therefore are required to be included in the value for the purpose of charging of service tax on the said service. Thus the Revenue's case is that the amount dispensed by the respondent is the expenditure incurred for providing of the taxable service, which forms integral part of the taxable value and therefore includible in the taxable value. In support of their stance, the Revenue seeks to garner support from Section 67 of the Finance Act, 1994, to emphasize that where the provisions of service tax is for a consideration in money by the gross amount charged, the service tax would be leviable thereon. 7. The Order-in-Original points out that the demand raised was based on Circular No.B1/6/2006-TRU dated 27.07.2005 (which has since been withdrawn vide Circular No.B1/4/2006-TRU dated 19.04.2006). The Revenue however on the basis of later Circular withdrawing the impugned circular (supra) dated 27.07.2005 adverts to Para 4.1.7 which reads as under:- "Reimbursable expenditure" that "value for the purpose of charging service tax is the gross amount received as consideration for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invited our attention to para 6.2 of the decision of the Larger Bench to fortify their contention :- "6.2 Similar is the situation in the transaction between a service provider and the service recipient. Only when the service recipient has an obligation legal or contractual to pay certain amount to any third party and the said amount is paid by the service provider on behalf of the service recipient, the question of reimbursing the expenses incurred on behalf of the recipient shall arise. For example, when rent for premises is sought to be claimed as reimbursement, it has to be seen whether there is an agreement between the landlord of the premises and the service recipient and, therefore, the service recipient is under obligation for paying the rent to the landlord and that the service provider has paid the said amount on behalf of the recipient. The claim for reimbursement of salary to staff, similarly has to be considered as to whether the staff were actually employed by the service recipient at agreed wages and the service recipient was under obligation to pay the salary and it was out of expediency, the provider paid the same and sought reimbursement from the service recipi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is concerned, in view of the stated position, we find that the respondent were filing their returns regularly, the practice of assessment and payment of service tax was well within in the knowledge of the department. We therefore fail to understand at the outset as to how the department could invoke the charge of suppression of fact with intent to evade service tax. 15. In the case of City Bank [2007 (8) S.T.R. 505 (T)] it was held by the Tribunal wherein similar service was provided to City Bank by the service provider that reimbursement of expenses by the bank were not taxable. The Tribunal in the said case had taken note of the circular issued by D.G. Service Tax to clarify that reimbursement of the expenses was not taxable. To similar outcome were the decisions rendered by the Tribunal in the case of Scott Wilson Kirkpatrick (I) Ltd. vs. Commr. of Service Tax, Bangalore [ 2007 (5) S.T.R. 118 (T)] categorically holding that reimbursement of expenses were not chargeable to Service Tax (delivered in the case of Consulting Engineer Service), B.S. Refrigeration Ltd. vs. Commr. of Service Tax, Bangalore [2006 (4) S.T.R. 103] (delivered in the case of Clearing & Forwarding Agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice provider on behalf of the recipient of service were separately indicated in the invoices issued by the service provider to the recipient of service. Yes. The respondent raised separate invoices for salary etc. for the deployed employees which were reimbursed to them on the actual basis. The service provider recovers from the recipient of service only such amount as has been paid by him to the third party. Yes. The respondent received the precise amount which were actually paid to the deployed employees. The goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provided on his own account. Yes. The respondent recruited the employees and deputed them with their clients as per their requirement. In lieu of recruitment and deployment they received service charge only. For the work done by the deputed employees the clients paid the noticee their salary etc. which were paid to individual employee on actual basis. Acting as a pure agent, no reimbursable expenses can be added to arrive at the determination of the value of taxable service. 17. The Order-in-Original records the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to pay for the payments but the noticee paid on their behalf and realized the same from their clients, hence it cannot be considered as value of taxable service rendered. The noticee did not procure any service from the personnel deployed with the clients. Conclusively, the noticee have fulfilled all the requisite conditions as stipulated in Rule 5(2) of the Valuation Rules for exclusion of such reimbursement from the taxable value for the purpose of levy and payment of Service Tax." 19. As for the department's assertion with regard to Section 67 of the Act, it is a clear mandate of law that the value of taxable service for levy of service tax has to be in consonance with the provisions of Section 66 of the Act ibid which levies tax only on the "value of taxable service" per se alone. Thus it is inbuilt in the mechanism of law to ensure that only "taxable service" component is required to be considered with reference to Section 67 of the Act. Reading Sections 66 and 67 of the Act harmoniously, it would be evident that the valuation of taxable service is nothing more nor anything less than the consideration paid for the service which alone is taxable and leviable to service tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the appellant that salary and reimbursement expenses like ESIS, bonus, conveyance, OT allowance etc. received from their clients do not form part of the gross value of such services provided as it is not in conformity with the Section 67 of the Finance Act, 1994. 8. We find from the records that the appellant during the relevant period has entered into agreements dt. 01.01.2007 with M/s. Bharati Airtel, Bangalore, dated 22.03.2005 with M/s. Bharati Infotel and dated 24.02.2007 with M/s. Bharati Televentures for supply of manpower in rendering various telecom services. The appellant paid service tax on the service charges in supplying manpower to M/s. Bharati Airtel, M/s. Bharati Infotel and M/s. Bharati Televentures against the said agreements; however in discharging service tax, they have not included the salary and other expenses reimbursed in the gross taxable value computed under Section 67 of the Finance Act, 1994. 9. We find that the said issue is no more res integra and covered by the judgement of the Tribunal in the case of M.P Security Force Vs. CCE&ST (supra). In the said case, the appellant M.P. Security Force provided security services and manpower supply serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btedly of the opinion that Rule 5(1) of the Rules runs counter and is repugnant to Sections 66 and 67 of the Act and to that extent it is ultra vires. It purports to tax not what is due from the service provider under the charging Section, but it seeks to extract something more from him by including in the valuation of the taxable service the other expenditure and costs which are incurred by the service provider "in the course of providing taxable service". What is brought to charge under the relevant Sections is only the consideration for the taxable service. By including the expenditure and costs, Rule 5(1) goes far beyond the charging provisions and cannot be upheld. It is no answer to say that under subsection (4) of Section 94 of the Act, every rule framed by the Central Government shall be laid before each House of Parliament and that the House has the power to modify the rule. As pointed out by the Supreme Court in Hukam Chand v. Union of India, AIR 1972 SC 2427 :- "The fact that the rules framed under the Act have to be laid before each House of Parliament would not confer validity on a rule if it is made not in conformity with Section 40 of the Act. Thus Section 94(4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards deduction of wages and salaries paid to the personal employees by the appellant is concerned, the same is covered by the decision of Mumbai Bench of this Tribunal in case of Security Guards Boards for Greater Bom. & Thane Dist. v. CCE, Thane-II - 2017 (51) S.T.R. 51 (Tri. - Mum.), wherein it is held that wages and allowance including salary and administrative charge collected from client is excludible from the gross value of taxable service in terms of Section 67 of the Act. The relevant paragraph of order is reproduced hereinafter : "4.1 Further, under section 6 of the Maharashtra Private Security Guards (Regulation of Employment & Welfare) Act, 1981, following has been provided:- "31. Disbursement of wages and other allowances to registered Security Guards of the Board. - The wage and other allowances payable to the registered Security Guards of the Board every month by the registered principal employer shall be remitted by the registered principal employers by cheque to Secretary, of the Board, within such time after the end of the month, as may be specified by the Board. The Secretary thereupon shall arrange to disburse the wages and other dues, if any to the regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or charging service tax has to be in consonance with Section 66 which levies a tax only on the taxable service and nothing else. There is thus inbuilt mechanism to ensure that only the taxable service shall be evaluated under the provisions of 67. Clause (i) of sub-section (1) of Section 67 provides that the value of the taxable service shall be the gross amount charged by the service provider "for such service". Reading Section 66 and Section 67(1)(i) together and harmoniously, it seems clear to us that in the valuation of the taxable service, nothing more and nothing less than the consideration paid as quid pro quo for the service can be brought to charge. Sub-section (4) of Section 67 which enables the determination of the value of the taxable service "in such manner as may be prescribed" is expressly made subject to the provisions of sub-section (1). The thread which runs through Sections 66, 67 and Section 94, which empowers the Central Government to make rules for carrying out the provisions of Chapter V of the Act is manifest, in the sense that only the service actually provided by the service provider can be valued and assessed to service tax. We are, therefore, undoubtedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of M/s. SCI International Securities Ltd. V/s Commissioner of Central Excise & Service Tax, Vadodara-I reported as 2017 (49) S.T.R. 399 (Tri.-Ahmd.). 5. Inasmuch as the issue stands settled that reimbursable expenses cannot form part of the gross value of the services being provided by the service provider, we find no reasons to include the E.S.I./P.F./W.C.P. amount in the assessable value of the services, inasmuch as the same are admittedly reimbursable to the persons concerned." 23. In the case of Security Guards Board for Greater Bom. & Thane Dist. Vs. C.C.E., Thane-II [2017 (551) S.T.R. 51 (Tri.-Mumbai)] after a detailed examination of the matter it was held that wages and allowances collected by the Board as an Agency, for payment to concerned persons/authorities were excludible from the value of the Service Tax and the taxable value for the purpose of levy needs to exclude the said charges. 24. The Hon'ble Madras High Court in the case of Commissioner vs. Sangamitra Services Agency [2014 (33) S.T.R. 137 (Mad.)], cited supra, had categorically held that - "7. In the absence of any material to show any understanding between Principal and the Client that the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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