Reimbursement of ₹206/MT to UltraTech Not Consideration for Service: CESTAT Rejects Department’s Valuation for Service Tax Demand [Read Order]
CESTAT held that the Rs. 206 per MT received by UltraTech from India Cements was only a share of overhead expenses and not consideration for any service, and thus could not be used for valuing a service tax demand.
Service-tax-demand-Taxscan
Service-tax-demand-Taxscan
The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the reimbursement of Rs. 206 per metric tonne received by UltraTech from India Cements was not consideration for any taxable service and could not be adopted as the value for raising a service tax demand.
UltraTech Cement Ltd., the appellant, had entered into a tripartite arrangement in 2007 under which India Cements was allotted a portion of the fly ash from Mettur Thermal Power Station (MTPS). India Cements reimbursed UltraTech at Rs. 206 per MT as its share of overhead and operating expenses related to the Fly Ash Collection System installed by UltraTech at MTPS.
The department alleged that this amount represented the value of services provided by UltraTech to TNEB and should be applied to the entire quantity of fly ash generated at MTPS for the purpose of service tax.
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The appellant’s counsel argued that the reimbursement was only a proportionate sharing of expenses by India Cements and had no connection with any service to TNEB. It explained that the rate of Rs. 206 per MT merely reflected India Cements’ share of installation and maintenance costs and was not a consideration flowing from TNEB.
They also pointed out that the agreement did not provide for any payment from TNEB for installation or operation of the system.
The revenue counsel that the amount collected from India Cements should be treated as the basis for valuing the alleged service rendered to TNEB and that it reflected the cost of operating the entire system.
The bench comprising M. Ajit Kumar (Technical Member) and Ajayan T.V. (Judicial Member) observed that the MOU and subsequent agreement showed that Rs. 206 per MT was only the share of overhead expenses payable by India Cements.
The tribunal explained that this rate could not be extended to cover the entire quantity of fly ash generated at MTPS for valuation purposes. It also pointed out that no part of this amount flowed from TNEB to UltraTech, and no evidence suggested that the reimbursement represented disguised consideration for a service. The appeal on this issue was allowed.
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