The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) quashed the service tax demand and held that the value of services provided free of cost to engineers and staff of service provider is not includable in gross amount charged.
During the course of audit, it was noticed by the department that the appellant has received consulting engineering service from outside of India and has incurred certain expenses such as accommodation, travelling, food expenses etc. on engineers on behalf of their service provider during the provision of service. The appellant has discharged service tax liability on the bill amount which was paid by them to the service provider under reverse charge mechanism as provided under Section 66A of the Finance Act, 1994.
The department has entertained a view that the value of these services provided by them free of cost to the engineers and staff of service provider should have been included in the taxable value of Consulting Engineering service received by them as per the provisions of Section 67 of Finance Act, 1994.
Accordingly, a show cause notice was issued demanding service tax of Rs. 3,58,274/- as per the provisions of Section 73(1) of Finance Act, 1994. The penal provisions and provisions for charging interest were also invoked. The Adjudicating Authority has confirmed all the charges which have been invoked in the show cause notice. The appellant has filed appeal before the Commissioner (Appeals) who vide impugned order-in-appeal has rejected the appeal of the appellant. Accordingly, the appellant is before the Tribunal.
A Two-Member Bench of Ramesh Nair, Judicial Member and CL Mahar, Technical Member relied on the judgment of the Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Limited vs. UOI has held that “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 Apex Court also upheld the order of the Delhi High Court and observed that “The value of such material which is supplied free by the service recipient cannot be treated as ‘gross amount charged’ and that is not the ‘consideration’ for rendering the services. Therefore, value of free supplies of diesel and explosives would not warrant inclusion while arriving at the gross amount charged on its service tax is to be paid.”
The Tribunal set aside the impugned order and quashed the service tax demand.
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