A two member bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Allahabad has held that a service tax is chargeable on the contract value between the service provider and service recipient. The bench observed that the value which is not part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider.
The Assessee, M/s Adept were engaged in the business of operation and maintenance of telecom/mobile towers. During the period in dispute, the Appellant provided service of diesel filling in the DG sets installed near the telecom towers maintained by BCL Secure Premises Private Limited. For providing such service, the parties entered in to a Memorandum Of Understanding ( ‘MOU’ ).
The assessee received agreed service charges for providing the above service and also paid the applicable service tax. Independently they had supplied diesel to be filled in the DG Sets at telecom tower site of the recipient. For the same they received agreed diesel charges. The supply of diesel has no connection/relation with the above output services.
Assessee contended that the amount received towards reimbursement of diesel cost cannot be treated as a consideration for provision of service in terms of Section 67 of the Act. This Section deals with valuation of taxable services for charging service tax. Sub-section (1) of Section 67 provides that where service tax is chargeable on any taxable service with reference to its value, then such value shall 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 the service provider. It is, therefore, clear that only such amount is subject to service tax which represents consideration for provision of service and any other amount which is not a consideration for provision of service cannot be subjected to service tax.
Revenue argued that payment received in ‘any form’ and ‘any amount credited or debited, as the case may be’ is to be included for the purposes of arriving at gross amount charges and is leviable to pay service tax. Revenue contended that the value of goods/materials supplied free is a form of payment and, therefore, should be included in the calculation of ‘gross amount.’
The bench comprising P.K. Choudhary, Member ( Judicial ) and Sanjiv Shrivastava, Member (Technical) held that “ it is clear that both prior and after amendment, the value on which service tax is payable has to satisfy the following ingredients: a. Service tax is payable on the gross amount charged:- the words “gross amount” only refers to the entire contract value between the service provider and the service recipient. The word “gross” is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word “gross” the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word “charged”, it is clear that the same refers to the amount billed by the service provider to the service receiver. Therefore, in terms of Section 67, unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining the value on which service tax is payable.”
The bench observed that “the definition of ‘gross amount charged’ given in Explanation (c) to Section 67 only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term “gross amount charged” to enable Revenue to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered. The fact that it is an inclusive definition and may not be exhaustive also does not lead to the conclusion that the contract value can be ignored and the value of free supply goods can be added over and above the contract value to arrive at the value of taxable services. The value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient. The service recipient can use any quality of goods and the value of such goods can vary significantly. Such a value has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider.” The bench set aside the impugned order.
Assessee was represented by Bharat B. Raichandani. Revenue was represented by Sandeep Pandey.
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