Gujarat High Court
Linde Engineering India Pvt. Ltd vs Union Of India on 14 June, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/19341/2018 ORDER DATED: 14/06/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 19341 of 2018
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LINDE ENGINEERING INDIA PVT. LTD & ANR.
Versus
UNION OF INDIA & ORS.
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Appearance:
MR MIHIR JOSHI SENIOR ADVOCATE WITH MR.PARTH
CONTRACTOR(7150) for the Petitioner(s) No. 1,2
MR PY DIVYESHVAR(2482) for the Respondent(s) No. 3
MR UTKARSH R SHARMA(6157) for the Respondent(s) No. 3
NOTICE SERVED BY DS for the Respondent(s) No. 1,2
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 14/06/2024
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) [1] Heard learned Senior Advocate Mr. Mihir Joshi with learned advocate Mr. Parth Contractor for the petitioners and learned advocate Mr. Utkarsh Sharma for the respondent No.3.
[2] Though served, no one appeared for the respondents Nos.1 and 2.
[3] Rule returnable forthwith. Learned advocate Mr. Utkarsh Sharma waives service of notice of Rule for the respondent No.3.
Page 1 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined [4] Having regard to the controversy in narrow compass and with the consent of learned advocates for the respective parties, the matter is taken up for hearing.
[5] The brief facts of the case are as under:
[5.1] The petitioner No.1 is engaged in the business of plant engineering and construction, and is inter alia engaged in the provision of consulting engineering and other services to various entities located in and outside India. The petitioner No.1 has been periodically filing its Service Tax Returns and has been paying appropriate Service Tax in accordance with law.
[5.2] On 23rd February 2016, a communication came to be addressed by the Superintendent (R-II), Service Tax Division-II, Vadodara, directing the petitioner No.1 to submit certain documents and along with the said communication, a letter addressed by the Assistant Audit Officer / CERA-IV was also provided to the petitioner No.1 communicating that the petitioner No.1 was to effectively levy and collect service tax on the difference Page 2 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined between the actual cost incurred and the contract price (when the actual cost incurred was higher than the contract price.
[5.3] In response to the aforesaid letter, the petitioner No.1, vide its letter dated 26th May 2016, submitted as under:
(i) that the methodology of accounting adopted by the petitioner No.1 was in consonance with Accounting Standard 7 issued by the Institute of Chartered Accountants of India and which was mandatorily required to be adhered to by the petitioner No.1.
(ii) that the said methodology adopted by the petitioner No.1, would have no bearing on the determination of the value of service rendered by the petitioner No.1, in a particular year as the same would only be governed by the provisions of Section 67 of the Finance Act, 1994 read with Rule 5 of the Service Tax (Determination of Value) Rules, 2006.
(iii) that the entire premise to levy and collect service tax from the petitioner No.1, purportedly on the 'revenue never to be billed' is absurd and alien to service tax law. The Page 3 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined petitioner No.1 categorically submits and represents that there is no such 'revenue never to be billed'.
(iv) that the petitioner No.1 collects and pays service tax on all the amounts bills to the service recipient, in accordance with the provisions of the Act and the Valuation Rules.
[5.4] However, the petitioner No.1 received a further letter dated 1st September 2017 from the Superintendent (R-II), Service Tax Division-II, Vadodara. The petitioner No.1, vide its reply dated 26 th September 2017, responded to the said letter of the Superintendent (R-II) and provided details as sought for.
[5.5] Thereafter, the respondent No.3 issued show cause notice to the petitioner No.1 relying upon the observations of the Audit Officer alleging as under:
(i) based on the revenue recognition methodology adopted by the petitioner No.1, as mandated in Accounting Standard 7, the petitioner No.1 was liable to pay service tax on the 'revenue never to be billed';Page 4 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024
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(ii) the petitioner No.1 had not paid service tax on the excess expenditure incurred over the contracted price which was not included in the value of service rendered;
(iii) the action of the petitioner No.1, in not paying service tax on the losses incurred by the petitioner No.1, was in violation of the provisions of Section 67 of the Act read with Rule 2(c) and Rule 5(1) of the Valuation Rules.
[5.6] Consequently, the petitioner No.1 is directed to show cause as to why an amount of Rs.20,49,63,134/- along with applicable interest and penalty should not be recovered from the petitioner No.1.
[5.7] Along with the aforesaid show cause notice, another show cause notice dated 31st October 2017 is issued by the respondent No.3 on the similar issue of alleged non-payment of service tax on losses suffered by the petitioner No.1, which is a subject matter of challenge in this petition.
[6] Learned Senior Advocate Mr. Minir Joshi for the petitioners, at the outset, submitted that the issue of charging service tax, on Page 5 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined the basis of Rule 2(c) and Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 (for short, "the Rules 2006") and Section 67 of the Finance Act, 1994 (for short, "the Act"), Rule 5(1) of the Rules 2006 cannot be sustained in view of the decision of the Hon'ble Supreme Court in the case of Union of India vs. Intercontinental Consultants and Technolocrats Pvt. Ltd. reported in 2018 (10) GSTL 401 (SC) and thereby, Rule 5(1) of the Rules 2006 has been held to be ultra vires Section 67 of the Act. It was further submitted that the case of the petitioner relates to the year 2014-15, whereas Section 67, which was amended by the Finance Act, 2015 with effect from 14th May 2015, whereby Clause (a) deals with "consideration" includes any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. It was, therefore, submitted that with effect from May 2015, by virtue of Section 67, such reimbursable expenditure or cost would form part of the valuation of taxable service for charging service tax.
[7] It was, therefore, submitted that the impugned show cause notice is, therefore, liable to be quashed and set aside.
Page 6 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined [8] On the other hand, learned advocate Mr. Utkarsh Sharma for the respondent No.3 relied upon the recent decision of the Hon'ble Supreme Court in the case of Commissioner of Central Excise and Service Tax, Rohtak vs. Merino Panel Product Ltd [Civil Appeal No.6891 of 2018 decided on 5 th December 2022] reported in 2022 (0) AIJEL-SC 70194. It was submitted that in the said decision, while interpreting the provisions of Section 4(1) of the Central Excise Act, 1944 read with Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (CEVR) similar to Rule 5 of the Rules 2006 read with Section 67 of the Finance Act, 1994 and while considering the contention of the assessee that the valuation method adopted in the show cause notice for determining the transaction value for goods sold to related parties was contrary to the circular, the Hon'ble Supreme Court held that methodology for arriving at the assessable value is immaterial to the validity of the notice provided that the power itself existed. It was, therefore, submitted by learned advocate Mr. Sharma that in the facts of the case, the impugned show cause notice only alleges the shortfall for payment of the service tax on Page 7 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined the basis of the Rule 5(1) of the Rules 2006, and therefore, the petitioner is required to file reply to the show cause notice.
[9] Learned advocate Mr. Sharma submitted that this petition is not maintainable under Article 226 of the Constitution of India and the petitioner should be relegated to the competent authority to file reply to the show cause notice for adjudication of the same as the respondent No.3 has jurisdiction to issue the show cause notice.
[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 Page 8 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined 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 Service Tax (Determination of Value) Rules, 2006 to the extent it includes the reimbursement of expenses in the value of taxable service for the purpose of charging service tax; and
(ii) for declaring the rule to be unconstitutional and ultra vires Sections 66 and 67 of the Finance Act, 1994; and
(iii) for quashing the impugned show-cause notice-cum-
demand dated 17.03.2008 holding that it is illegal, arbitrary, without jurisdiction and unconstitutional.
7. Rule 5, which provides for 'inclusion in or exclusion from the value of certain expenditure or costs', is reproduced below in order to understand its full implication:
"5. Inclusion in or exclusion from value of certain expenditure or costs.
(1) Where any expenditure or costs are incurred by the service provider in the course of providing 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.
(2) Subject to the provisions of sub rule (1), the Page 9 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:
the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;
the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;
the recipient of service is liable to make payment to the third party;
the recipient of service authorities the service provider to make payment on his behalf;
the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;
the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;
the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and 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 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;Page 10 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024
NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined 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 service provided is what X pays to Y. Y does not act as an agent behalf of X when obtaining the television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X. Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his services as an estate agent.
Illustration 2 : In the course of providing a taxable service, a service provider incurs costs such as traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice issued to the recipient of service. In such a case, the service provider is not acting as an agent of the recipient of service but procures such inputs or input service on his own account for providing the taxable service. Such expenses do not become reimbursable expenditure merely because they are indicated separately in the invoice issued by the service provider to the recipient of service.Page 11 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024
NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined Illustration 3 : A contracts with B, an architect for building a house. During the course of providing the taxable service, B incurs expenses such as telephone charges, air travel tickets, hotel accommodation, etc., to enable him to effectively perform the provision of services to A. In such a case, in whatever form B recovers such expenditure from A, whether as a separately itemised expense or as part of an inclusive overall fee, service tax is payable on the total amount charged by B. Value of the taxable service for charging service tax is what A pays to B. Illustration 4 : Company X provides a taxable service of rent cab by providing chauffeur driven cars for overseas visitors. The chauffeur is given a lump sum amount to cover his food and overnight accommodation and any other incidental expenses such as parking fees by the Company X during the tour. At the end of the tour, the chauffeur returns the balance of the amount with a statement of his expenses and the relevant bills. Company X charges these amounts from the recipients of service. The cost incurred by the chauffeur and billed to the recipient of service constitutes part of gross amount charged for the provision of services by the company X."
8. The case set up by the respondent in the writ petition was that Rule 5(1) of the Rules, which provides that all expenditure or cost incurred by the service provider in the course of providing the taxable 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 Page 12 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined 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 purchase of securities including the commission or brokerage paid by the stock broker to any sub broker.
(b) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit;
(c)the amount of premium charged by the insurer from the policy holder;
(d) the commission received by the air travel agent from the airline;
(e) the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;Page 13 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024
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(f) the reimbursement received by the authorized service station from manufacturer for carrying out any service of nay motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer; and
(g) the commission or any amount received by the rail travel agent from the Railways or the customer.
But does not include -
(i) initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telephone or telex or for leased circuit;
(ii) the cost of unexposed photography film, unrecorded magnetic tape or such other storage devices, if any, sold to the client during the course of providing the service;
(iii) the cost of parts or accessories, or consumable such as lubricants and coolants, if any, sold to the customer during the course of service or repair of motor cars, light motor vehicle or two wheeled motor vehicles;
(iv) the airfare collected by air travel agent in respect of service provided by him;
(v) the rail fare collected by rail travel agent in respect of service provided by him;
(vi) the cost of parts or other material, if any, sold to the customer during the course of providing maintenance or repair service;
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(vii) the cost of parts or other material, if any, sold to the customer during the course of providing erection, commissioning or installation service; and
(viii) interest on loan.
Explanation 2 - Where the gross amount charged by a service provider is inclusive of service tax payable, the value of taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged.
Explanation 3. For the removal of doubts, it is hereby declared that the gross amount charged for the taxable service shall include 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 Page 15 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined 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 the addition of tax payable, is equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.
(4) Subject to the provisions of sub sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.
Explanation: For the purpose of this section,
(a) "consideration" includes any amount that is payable for the taxable services provided or to be provided;
(b) "money" includes any currency, cheque, promissory note, letter of credit, draft, pay order, travelers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value;
(c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called "Suspense account" or by any other name, in the books of accounts of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise."
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10. The High Court, after taking note of the aforesaid provisions, noted that the provisions both amended and unamended Section 67 authorised the determination of value of taxable services for the purpose of charging service tax under Section 66 (which is a charging section) as the gross amount charged by the service provider for such services provided or to be provided by him, in a case where the consideration for the service is money. Emphasising on the words 'for such service', the High Court took the view that the charge of service tax under Section 66 has to be on the value of taxable service i.e. the value of service rendered by the assessee to the 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. On that analogy, the High Court has opined that scope of Rule 5 goes beyond the Section which was impermissible as the Rules which have been made under Section 94 of the Act can only be made 'for carrying out the provisions of this Chapter' (Chapter V of the 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 Page 17 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined 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 India1. 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 Ltd, (1984) 2 SCC 50; State of U.P. & Ors. vs. Babu Ram Upadhya, (1961) 2 SCR 679; CIT v. S. Chenniappa Mudaliar, (1969) 74 ITR 41; Bimal Chandra Banerjee v. State of M.P. & Ors. (1971) 81 ITR 105 and CIT, Andhra Pradesh v. Taj Mahal Hotel, (1971) 82 ITR 44]. The High Court also referred to the judgment of Queens Bench of England in the case of Commissioner of Customs and Excise v. Cure and Deeley Ltd. [(1961) 3 WLR 788 (QB)]."
[12] The Hon'ble Supreme Court, in the aforesaid decision, after considering the submissions made by the parties, has held 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 Page 18 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined manner, as done by Rule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act.
22. Section 66 of the Act is the charging Section which reads as under:
"there shall be levy of tax (hereinafter referred to as the service tax) @ 12% of the value of taxable services referred to in sub-clauses of Section 65 and collected in such manner as may be prescribed."
23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various sub-clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the 'value of taxable services'. Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon.
24. In this hue, the expression 'such' occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation 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 Page 19 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined 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 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 bye- law, 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.Page 20 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024
NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined The statutory provision ahs 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 the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect."
29. In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with 'consideration' is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the learned counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the Page 21 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited[(2015) 1 SCC 1] wherein 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 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 Page 22 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined 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'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later."
30. As a result, we do not find any merit in any of those appeals which are accordingly dismissed."
[13] In view of the above dictum of law, the impugned show cause notice would not be tenable in law as the same is without jurisdiction. Therefore, the contention raised on behalf of the respondent No.3 relying upon the decision of the Hon'ble Supreme Court that the impugned show cause notice issued by the respondent No.3 is within jurisdiction and therefore, this petition is not maintainable under Article 226 of the Constitution of India, Page 23 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024 NEUTRAL CITATION C/SCA/19341/2018 ORDER DATED: 14/06/2024 undefined cannot be accepted. In the facts of the case, as the impugned 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 31 st October 2017 is hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No order as to costs.
(BHARGAV D. KARIA, J) (NIRAL R. MEHTA,J) CHANDRESH Page 24 of 24 Downloaded on : Fri Jun 28 21:33:52 IST 2024