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TMI Blog2025 (2) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... Technocrats Pvt Ltd v UOI, [2012 (12) TMI 150 - DELHI HIGH COURT], wherein Rule 5(1) of the Service Tax Valuation Rules, 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services, in the value of such taxable services, was stuck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections.
Extended period of limitation - Penalties - HELD THAT:- There are force in the contentions of the learned counsel for the appellants that the issue involved was of interpretational nature and no evidence of malafides has been adduced that would attract the extended period of limitation or warrant imposition of penalties.
Conclusion - i) The reimbursable expenses, not forming part of the consideration for services rendered, should not be included in the taxable value. ii) The invocation of the extended period of limitation was unjustified. iii) Penalties set aside.
The impugned order in appeal is set aside and the appeals are allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... the service provider for providing service and according to Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 (Valuation Rules in short), expenditure or cost incurred by the service provider in the course of providing taxable service shall be treated as consideration for the taxable service and is includible in the taxable value. Again, Rule 5(2) of the Valuation Rules provided that the expenditure or costs incurred by the service provider as a" Pure Agent" of the recipient of service is liable to be excluded from the taxable service, provided the service provider qualifies as a "Pure Agent" by satisfying the conditions specified in explanation 1 to Rule 5(2) of the Valuation Rules. 4. The Department was of the opinion that the appellants have procured the services for themselves and payments were made to the third party as a recipient of service and not as a "Pure Agent" and since the appellant has not fulfilled the conditions specified in Rule 5(2) of the Valuation Rules read with explanation 1 of the said rules so as to qualify as a pure agent, the above charges collected from the clients are to be treated as expenditure or costs incurred by the appellants in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce holders for CHA operations. Transglobal invoices the appellants for agency charges and the appellants in turn raise invoice for their services on the clients for the charges incurred during the rendering of CHA services by Transglobal without any mark up and has discharged service tax on the consideration received for providing its services to the client. It is submitted that both the SCNs clearly denote these charges such as EDI, AAI, Steamer Port, CFS, survey and customs as reimbursable charges in the annexures invoking Rule 5(1) of the Valuation Rules 2006 which has since been struck down by the Honourable Delhi High Court in the Intercontinental Technocrats case and further affirmed by the Honourable Supreme Court. These expenses are reimbursed by the client on actuals. The appellants did not discharge service tax on the reimbursable expenses as it is not a consideration for any services rendered. The learned counsel submits that only the service charges received as consideration for the services provided or to be provided would form part of the taxable value for the purposes of service tax and reimbursements are not liable to tax. 6. The learned counsel submits that the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay service tax. The Honourable Supreme Court affirmed the decision of the Delhi High Court in Intercontinental Consultants & Technocrats Pvt Ltd v UOI, 2013 (29) STR 9 (Del), wherein Rule 5(1) of the Service Tax Valuation Rules, 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services, in the value of such taxable services, was stuck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections. The Honourable Supreme Court had also noticed the nature of reimbursable expenses that arose for consideration in the facts of the case as well as that in connected appeals before it, and has gone on to hold as under: "21. Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assessees. As per these Rules, these reimbursable expenses also form part of 'gross amount charged'. Therefore, the core issue is as to whether Section 67 of the Act permits the subordinate legislation to be enacted in the said man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined. 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 service tax is to be paid only on the services actually provided by the service provider. 26. It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner : "Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the byelaw, if not in conformity with the statute in order to give effect to the statutory provision the Rule or bye-law has to be ignored. The statutory provision has precedence and must be complied with." 27. The aforesaid principle is reiterated in Chenniappa Mudaliar holding that a rule which comes in conflict with the main enactment has to give way to the provisions of the Act. 28. It is also well established principle that Rules are framed for achieving the purpose behind the provisions of the Act, as held in Taj Mahal Hotel : "the Rules were meant only for the purpose of carrying out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention 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 activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1] , a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal rule as was observed in L' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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