Frischmann Prabhu (India) Ltd vs Commissioner Of Service Tax

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI

COURT No. I APPEAL No. ST/210 & 231/11-MUM (Arising out of Order-in-Appeal No. RBT/04/2011 dated 11.01.2011 passed by Commissioner of Central Excise (Appeals)-IV, Mumbai)

For approval and signature: Honble Mr.M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the :No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair co :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================

Frischmann Prabhu (India) Ltd. Appellant Vs. Commissioner of Service tax, Respondent Mumbai-I

Appearance:

Shri. Vinod Awtani Advocate for appellant Shri. A.B. Kulgod , AC (AR) for respondent

CORAM: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

Date of Hearing : 21/07/2015 Date of Decision : 21/07/2015

ORDER NO

Per: M.V. Ravindran

1. These two appeals are directed against order-in-appeal no.RBT/04/2011 dated- 11.01.2011.

2. Since both the appeals are filed by the same appellant and issue involved also being the same, we are being disposed of by a common order.

3. The relevant facts that arias for consideration are appellant here-in are providing consulting engineers services to their client mainly National Highway Authority of India, MMRDA and MSRDC and are discharging service tax liability on the amounts billed and received as consulting fees, during the process of rendering such consulting engineers services, appellant deputes their employees to various sides and recovers the actual expenses like travelling, accommodation, rent for office at site from the service recipients. It is the claim of the revenue that service tax liability needs to be discharged on these amounts also. Both the adjudicating authority as well as first appellate authority held against the appellant and service tax liability with interest and penalty is also imposed.

4. Learned chartered accountant after taking us through the entire case records submits that there is no dispute that the demand of service tax liability is only in respect of reimbursable/out of pocket expenses incurred by the appellant while rendering the services to various service radicands. It is his submission that this issue is now no more res integra as Honble High court of Delhi in case of Enter Continental Consultants and Technocrats pr. Ltd. vs. Union of Indian- 2013 (29) STR (DEL) has struck down the provisions of roll find (1) of service tax valuation rolls. It is his submission that any demand on reimbursable services cannot now survive.

5. Learned departmental representative would reiterate the findings of lower authorities.

6. On consideration of the submissions made by both sides and perusal of records, we find that there is no dispute as to the facts that the service tax demand raised in these two appeals is respect of an amount received by the appellant as reimbursable expenses on actual basis incurred in respect of deputation of professionals, of supporting staph, transportation charges on duty to site office, rent out the site office an amount paid for accommodation of staff etc.

7. We find strong force in the contentions raised by the learned charted accountant that the issue is now squarely covered by the Judgment of the Honble High court of Delhi in the case of Inter Continental Consultants and Technocrats Pvt. Ltd. (Supra). We with great respect reproduce the relevant paragraphs No. 10, 11, 18.

10.?The contention of the petitioner that Rule 5(1) of the Rules, in as much as it provides that all expenditure or costs incurred by the service provider in the course of providing the taxable service shall be treated as consideration for the taxable service and shall be included in the value for the purpose of charging service tax goes beyond the mandate of Section 67 merits acceptance. Section 67 as it stood both before 1-5-2006 and after has been set out hereinabove. This section quantifies the charge of service tax provided in Section 66, which is the charging section. Section 67, both before and after 1-5-2006 authorises the determination of the value of the taxable service for the purpose of charging service tax under Section 66 as the gross amount charged by the service provider for such service provided or to be provided by him, in a case where the consideration for the service is money. The underlined words i.e. for such service are important in the setting of Sections 66 and 67. The charge of service tax under Section 66 is on the value of taxable services. The taxable services are listed in Section 65(105). The service provided by the petitioner falls under clause (g). It is only the value of such service that is to say, the value of the service rendered by the petitioner to NHAI, which is that of a consulting engineer, that can be brought to charge and nothing more. The quantification of the value of the service can therefore never exceed the gross amount charged by the service provider for the service provided by him. Even if the rule has been made under Section 94 of the Act which provides for delegated legislation and authorises the Central Government to make rules by notification in the official gazette, such rules can only be made for carrying out the provisions of this Chapter i.e. Chapter V of the Act which provides for the levy, quantification and collection of the service tax. The power to make rules can never exceed or go beyond the section which provides for the charge or collection of the service tax.

11.?In the aforesaid backdrop of the basic features of any legislation on tax, we have no hesitation in ruling that Rule 5(1) which provides for inclusion of the expenditure or costs incurred by the service provider in the course of providing the taxable service in the value for the purpose of charging service tax is ultra vires Section 66 and 67 and travels much beyond the scope of those sections. To that extent it has to be struck down as bad in law. The expenditure or costs 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. The illustration 3 given below the Rule amplifies what is meant by sub-rule (1). In the illustration given, the architect who renders the service incurs expenses such as telephone charges, air travel tickets, hotel accommodation, etc. to enable him to effectively perform the services. The illustration, therefore, says that these expenses are to be included in the value of the taxable service. The illustration clearly shows how the boundaries of Section 67 are breached by the Rule. Apart from travelling beyond the scope and mandate of the Section, the Rule may also result in double taxation. If the expenses on air travel tickets are already subject to service tax and is included in the bill, to charge service tax again on the expense would certainly amount to double taxation. It is true that there can be double taxation, but it is equally true that it should be clearly provided for and intended; at any rate, double taxation cannot be enforced by implication. A Constitution Bench of the Supreme Court in Jain Brothers v. Union of India - (1970) 77 ITR 107 observed as follows, expounding the principles relating to double taxation :-

It is not disputed that there can be double taxation if the legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted, they cannot be so interpreted as to tax the subject twice over to the same tax (vide Channell J. in Stevens v. Durban-Roodepoort Gold Mining Co. Ltd.). The Constitution does not contain any prohibition against double taxation even if it be assumed that such a taxation is involved in the case of a firm and its partners after the amendment of section 23(5) by the Act of 1956. Nor is there any other enactment which interdicts such taxation. It is true that section 3 is the general charging section. Even if section 23(5) provides for the machinery for collection and recovery of the tax, once the legislature has, in clear terms, indicated that the income of the firm can be taxed in accordance with the Finance Act of 1956 as also the income in the hands of the partners, the distinction between a charging and a machinery section is of no consequence. Both the sections have to be read together and construed harmoniously. It is significant that similar provisions have also been enacted in the Act of 1961. Sections 182 and 183 correspond substantially to section 23(5) except that the old section did not have a provision similar to sub-section (4) of section 182. After 1956, therefore, so far as registered firms are concerned the tax payable by the firm itself has to be assessed and the share of each partner in the income of the firm has to be included in his total income and assessed to tax accordingly. If any double taxation is involved the legislature itself has, in express words, sanctioned it. It is not open to any one thereafter to invoke the general principles that the subject cannot be taxed twice over.

18.?Section 66 levies service tax at a particular rate on the value of taxable services. Section 67(1) makes the provisions of the section subject to the provisions of Chapter V, which includes Section 66. This is a clear mandate that the value of taxable services for 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 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 sub-section (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) does not add any greater force to the Rules than what they ordinarily have as species of subordinate legislation.

8. It can be seen from the above reproduced ratio that the issue is now squarely covered by the Judgment of the Honble High court in favour of appellant.

9. In view of the facts and circumstances of this case and authoritative judicial pronouncement on the issue, we hold that the impugned orders are unsustainable and liable to be set aside and we do so. Impugned orders are set aside and appeals are allowed with consequential relief.

(Dictated in Court)

(C.J. Mathew)

Member (Technical) (M.V. Ravindran) Member (Judicial) akp

APPEAL No. ST/210 & 231/11-MUM