Whether diesel received free of cost from the service recipient is included in gross value of service provided?

PJ/Case Law/2013-14/2009

Case:- KARAMJEET SINGH & CO. LTD. VERSUS COMMISSIONER OF C.EX., RAIPUR

Citation:-2013(32) S.T.R. 740 (Tri.-Del.)

Brief Facts:-The four appeals are preferred (by the same assessee) against adjudication orders dated 16-5-2008, 20-7-2009, 20-7-2009, 20-7-2009 and 31-1-2011, respectively determining the assessee’s liability to specified amounts of Service Tax, interest and penalties.

The assessee was proceeded against for under remittance of Service for the taxable "site formation and clearance, excavation and earth moving demolition" services provided to M/s. Jindal Steel & Power Limited (JSPL) under distinct contracts covering the period 16-6-2005 to 31-3-2007; 1-4-2007 to 30-9-2007; 1-10-2007 to 31-9-2008; and 1-10-2008 to 30-9-2009, respectively. Before the adjudicating authority the assessee had contended that for the entire period covered by the adjudication order dated 16-5-2008 (subject matter of Appeal No. ST/578/2008) and for the period covered by the adjudication order dated 20-7‑2009 (subject matter of Appeal No. ST/803/2009) Service Tax was due to be remitted since the services provided by the assessee, on a true and fair construction of the transaction did not fall under site formation and clearance etc. service, a contention that did not find favour with the adjudicating authority.

The short issue that falls for consideration is whether the value of diesel supplied by the service recipient JSPL, free of cost, to the assessee service provider ought to be included in the gross value charged for the service provided for valuation of the tax liability under Section 67 of the Finance Act, 1994. The adjudicating authority concluded that the value of the diesel so supplied by the service recipient to the assessee/service provider should be included. Since the assessee failed to reveal the value of the diesel so provided by JSPL and to include the same in the gross value receipts disclosed in the Service Tax-3 returns and failed to remit tax on such value, proceedings were initiated culminating in the adjudication orders, impugned in these appeals. Since this is the core issue we refer to the adjudication order dated 16-5-2008 (subject matter of Appeal No. ST/572/2008) as illustrative of all the adjudication orders which are impugned in the appeals.

The adjudicating authority in para 6 of the order extracted provisions of Section 67 of the Act; in para 7, the value of the diesel supplied free of cost by the service recipient to the assessee is set out in a tabular form, and there is no contest on the valuation of the diesel price. In pare 7.2, the adjudicating authority concluded that the total diesel consumed during the relevant period was of the value of Rs. 27,51,22,718/- and that this value must be considered as the consideration received by the service provider from the service recipient for providing the taxable service of site clearance, under Section 67(1)(ii) of the Act.

Respondent Contentions:-The respondent reiterated the findings of the adjudicating authority.

Reasoning of Judgment:-Whether the above conclusion and analysis is sustainable is the only issue before this Tribunal.

In the context of a challenge to the vires of Rule 5(1) of Service Tax (Determination of Value) Rules, 2006, the High Court of Delhi in Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India - 2013 (29) S.T.R. 9 (Del.) had occasion to consider the scope of Section 67 of the Act as well. To the extent relevant and material, suffice it to notice that Rule 5(1) of the 2006 Rules enjoins that where any expenditure or cost is incurred by the service provider in the course of providing a taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging Service Tax on the said service. This provision was challenged on the ground of transgressing the scope and trajectory of Section 67 of the Act. The High Court invalidated Rule 5(1) of the 2006 Rules on the conclusion that this provision was ultra vires Section 67 of the Act. In the course of analysis, the Delhi High Court concluded that in the context of Section 67 read holistically with the provisions of Section 66 as well, it is clear that quantification of the value of a service can never exceed the gross amount charged by the service provider for the service provided to him and that the mere fact that rule was made as a subordinate legislation would not enable an expansion of the legitimate contours of the statutory provision. Proceeding from this analysis of Section 67, the High Court concluded that 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.

In the light of the aforesaid clear ratio delineated in Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India (supra), the conclusion is irresistible that the value of diesel supplied free of cost by the service recipient to the assessee service provider for providing the taxable "site formation and clearance, excavation and earthmoving and demolition" service would not be a component of the gross value charged for the service provided, for computation of tax under Section 67 of the Act and the failure to so include would not constitute either suppression of material facts nor a wilful contravention of the provisions of the Act with a view to evade tax, justifying invocation of the extended period of limitation under the proviso to Section 73(i) of the Act either. The several adjudication orders impugned in these appeals are unsustainable on the aforesaid analysis and are accordingly quashed. The appeals are allowed but in the circumstances without costs.

Decision:-Appeal allowed.

Comment:- Following the ratio of the decision given by the High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India, the value of material supplied free of cost by the service recipient is not includible in the taxable value for the purpose of levy of service tax.

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PJ/Case Law/2013-14/2009

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