corporate laws - Ground rent on containers unloaded at Port = whether the liability to pay ‘ground rent’ on containers unloaded at Cochin Port, but not cleared by the consignees/importers and refused to be de-stuffed by the Port, on the ground of inadequate storage space, can be imposed on the owners of the 3 vessel/steamer agents beyond the period of 75 days, fixed by the Tariff Authority of Major Ports1 , a statutory body constituted under Section 47A of the Major Port Trust Act2 , 1963.= Taking note of the above inconsistencies in the judgments which have been delivered after the pronouncement by the Constitution Bench in Rowther-I, we are inclined to the view that the following issues need to be resolved by a larger Bench: a) Whether in the interpretation of the provision of Section 2(o) of the MPT Act, the question of title of goods, and the point of time at which title passes to the consignee is relevant to determine the liability of the consignee or steamer agent in respect of charges to be paid to the Port Trust; b) Whether a consignor or a steamer agent is absolved of the responsibility to pay charges due to a Port Trust, for its services in respect of goods which are not cleared by the consignee, once the Bill of lading is endorsed or the delivery order is issued; c) Whether a steamer agent can be made liable for payment of storage charges/demurrage, etc. in respect of goods which are not cleared by the consignee, where the steamer agent has not issued a delivery order; if so, to what extent; d) What are the principles which determine whether a Port Trust is entitled to recover its dues, from the steamer agent or the consignee; and e) While the Port Trust does have certain statutory obligations with regard to the goods entrusted to it, whether there is any obligation, either statutory or contractual, that obliges the Port Trust to de-stuff every container that is entrusted to it and return the empty containers to the shipping agent. The larger Bench may deal with any additional issues relevant to the context, as it deems necessary.

1

 IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2525 OF 2018
[Arising out of SLP (C) No.4683 of 2012]
THE CHAIRMAN, BOARD OF TRUSTEES ....APPELLANT
COCHIN PORT TRUST

Versus
M/S AREBEE STAR MARITIME .....RESPONDENTS
AGENCIES PVT. LTD. & ORS.
WITH
CIVIL APPEAL NO.2526 OF 2018
SLP(C) No. 5034/2012
CIVIL APPEAL NO.2527 OF 2018
SLP(C) No. 5270/2012
CIVIL APPEAL NO.2530 OF 2018
SLP(C) No. 7636/2012
CIVIL APPEAL NO.2529 OF 2018
SLP(C) No. 7716/2012
CIVIL APPEAL NO.2528 OF 2018
SLP(C) No. 7600/2012
REPORTABLE
2
CIVIL APPEAL NO.2531 OF 2018
SLP(C) No. 7809/2012
CIVIL APPEAL NO.2532 OF 2018
SLP(C) No.7813/2012
CIVIL APPEAL NO.2533 OF 2018
SLP(C) No. 7864/2012
CIVIL APPEAL NO.2534 OF 2018
SLP(C) No. 8165/2012
AND
CIVIL APPEAL NO.2535 OF 2018
SLP(C) No.8126/2012
J U D G M E N T
Dr. D.Y. CHANDRACHUD, J
1 Leave granted.
2 These proceedings have arisen from a judgment dated 27 September
2011 of a Division Bench of the Kerala High Court in a batch of writ appeals
and original petitions, preferred by various shipping agents.
3 The question before the High Court was whether the liability to pay
‘ground rent’ on containers unloaded at Cochin Port, but not cleared by the
consignees/importers and refused to be de-stuffed by the Port, on the ground
of inadequate storage space, can be imposed on the owners of the
3
vessel/steamer agents beyond the period of 75 days, fixed by the Tariff
Authority of Major Ports1
, a statutory body constituted under Section 47A of the
Major Port Trust Act2
, 1963.
4 The facts of the case are summarized in the following extract of the
judgment of the High Court:
“The sequence of events that led to the stalemate refers to
the incidents which happened in 1998 when there (sic)
imports synthetic woollen rags (in containers) in the Cochin
Port Trust premises. The said containers were destuffed to
facilitate Customs examination and to return the empty
containers to the Steamer Agents. The destuffed cargo
occupied much larger space and was not promptly cleared
by the consignees in view of the hurdles placed by the
Customs stating that the cargo actually did not constitute
old woollen rags as declared, but mostly were brand new
clothes which could not have been cleared. The ‘modus
operandi’ of the consignees/importers attracted wide
attention of all concerned and taking note of the probable
extent of liability to be imposed by the Customs
Department, and the liability to be satisfied to the Port and
others concerned, the consignees did not turn up to clear
the goods and they were lying idle in the Port premises for
quite long.”
The Port Trust charged ‘ground rent’ from the Steamer Agents/owners of the
containers.
5 The case revolves around the interpretation of the provisions of the MPT
Act. The Act makes provision for the constitution of port authorities in whom it
vests administrative control and management of ports. Section 3 authorises
the Central Government to constitute a Board of Trustees (“Board”3
) in respect
1 TAMP
2 MPT Act
3 “Board” and “Port Trust authority” have been used interchangeably.
4
of any major port. Under Section 5, every Board is to be a body corporate.
Section 35 empowers the Board to execute works within or without the limits of
the port and provide any such appliances for the port as it “may deem
necessary or expedient”. Section 43 places responsibility on a Board for the
loss, destruction or deterioration of goods of which it has taken charge.
6 Section 2(o) defines an "owner", in relation to goods, to include “any
consignor, consignee, shipper or agent for the sale, custody, loading or
unloading of such goods”; and in relation to any vessel or any aircraft making
use of any port, to include “any part-owner, charterer, consignee, or mortgagee
in possession thereof”. Section 42 authorises the Board to undertake certain
services. Sub-section (2) of Section 42 provides that a Board may, if requested
by the owner of the goods, take charge of the goods for the purpose of
performing services. Section 42(7) provides that after goods have been taken
charge of and a receipt given for them under the Section, no liability for any
loss or damage which may occur to them shall attach to any person to whom a
receipt has been given or to the master or owner of the vessel from which the
goods have been landed or transhipped.
Chapter VI of the Act provides for imposition and recovery of rates at ports.
The right to prescribe the scale of rates for services performed by the Board or
other persons and to prescribe the statement of conditions under which the
premises of the Board can be used, was vested earlier, mainly under Sections
48 and 49, with the Board of Trustees of the Port. Later, with an amendment of
5
the Act in 1997, Section 47A was inserted by which TAMP was created. The
power to prescribe a scale of rates now vests with TAMP.
Under Section 59(1), a lien on goods is created in favour of the Board (in
respect of any service rendered for such goods). The Board is empowered to
seize and detain the goods until its rates and rents are fully paid. Section 60
provides for the Ship-owner's lien for freight and other charges.4
 Under
Sections 61 and 62, such seized/detained goods can be sold by the Board by
public auction or in any other manner, subject to the conditions and
procedures prescribed in those provisions.
Though the term ‘ground rent’ is not defined in the MPT Act, the source of
authority to levy it is in Section 49(1) (d)5
 of the Act. The scheme of the MPT
Act appears to be silent with regard to the persons from whom ‘ground rent’
and other charges could be collected.
7 During the course of submissions before the High Court, it was pointed
out that the question whether a “Steamer Agent” can be construed to be the
“owner” of the goods carried in the vessel belonging to its principal, in view of
the definition in Section 2(o) and whether the “Steamer Agent” can be made
liable for the payment of storage charges/demurrage in respect of the goods,
4 Section 60(1) provides: (1) “if the master or owner of any vessel or his agent, at or before the time of landing
from such vessel any goods at any dock, wharf, quay, stage, jetty, berth, mooring or pier belonging to or in the
occupation of a Board, gives to the Board a notice in writing that such goods are to remain subject to a
lien for freight or other charges payable to the ship-owner, to an amount to be mentioned in such notice, such
goods shall continue to be liable to such lien to such amount.”
5 Section 49(1) (d) provides: [(1) The Authority shall from time to time, by notification in the Official Gazette, also
frame a scale of rates on payment of which, and a statement of conditions under which, any property belonging
to, or in the possession or occupation of, the Board, or any place within the limits of the port or the port
approaches may be used for the purposes specified hereunder]:-
…
 (d) any other use of any land, building, works, vessels or appliances belonging to or provided by the
Board.
6
which are uncleared by the consignee, has been referred by a Bench of two
learned Judges of this Court to a larger Bench in Forbes Forbes Campbell
and Co. Ltd. v Board of Trustees, Port of Bombay6
 [Forbes- I]. This Court
had then framed the following questions of law of public importance:
a) Whether a steamer agent can be construed as owner of the goods
carried in his principal’s vessel within the definition of “owner” in relation
to goods under Section 2(o) of the Major Port Trusts Act 1963;
b) Whether a steamer agent can be made liable for payment of storage
charges/demurrage in respect of goods, which are uncleared by the
consignee, even where the steamer agent has not issued a delivery
order; and
c) In the event that a steamer agent is held liable, to what extent is he
liable and whether it absolves the Port Trust from acting promptly under
Sections 61 or 62 of the Act?
In view of the above reference, the High Court did not deal with these specific
issues. However, the High Court observed that the reference did not cover:
(i) The scope and the power of TAMP (with effect from 9 January 1997)
to prescribe the scale of rates and conditions, as specified under
Sections 48 and 49 of the MPT Act; and
6 (2008) 4 SCC 87
7
(ii) Whether various TAMP orders limiting the entitlements of the Port
Trust to realize the ‘ground rent’ was in tune with the mandate of
Sections 61/62 of the MPT Act.
The High Court restricted the scope of consideration in the batch of petitions
and appeals to the scheme of the MPT Act and the effect of the TAMP orders
with regard to fixation of and the extent of liability upon the Steamer Agents to
pay the ‘ground rent’.
8 The High Court held thus:
“Nowhere has it been specified in the statutes or
elsewhere that the Steamer Agents have a duty or liability
to clear the goods from the custody of the Port, which in
fact is the onus of the Consignee/their agents. This is more
so since, as per the Bills of Lading Act, the ownership and
title to the goods are vested on the Consignee or an
endorsee of the Bill of lading. Once the goods are landed
in the Port premises, the same cannot be cleared by the
Owners of the Vessel/Steamer Agents and their rights
stand confined ‘only to the lien’ for freight and other
charges to be exercised in conformity with S. 60(1) of the
Major Port Trusts Act which of course is having priority in
the matter of satisfaction/appropriation in the event of sale
of the goods, as provided; on pursuing the course
stipulated under Section 61/62 of the Major Port Trusts Act
or such similar course as contemplated under Section 48
of the Customs Act. In both the cases, the Shippers’ lien
gets precedence and priority over any other dues/lien
including the lien of the Port Trust or the amounts payable
to the Customs/Government or under such other heads,
except the expenses for the sale proceedings, which is the
mandate under Section 63 of the MPT Act and Section 150
of the Customs Act.”
The High Court came to the conclusion that the scheme of the statute does
not contemplate a liability to be fulfilled by the vessel owners except to the
8
extent as specified and the freight and other charges payable to them get
priority over other dues payable to the Government and also to the Port, if the
lien is exercised in the manner specified under Section 60(1).
The High Court held that there is no justification for the Port Trust to collect
‘ground rent’ charges in respect of the containers indefinitely. The High Court
held that the authority and power to prescribe the scale of rates and conditions
under Sections 48 and 49 of the MPT Act stands vested exclusively with TAMP
with effect from 9 January 1997. It held that the Port Trust can demand
‘ground rent’ only for a maximum period of 75 days, under the orders issued
by TAMP. The High Court rejected the contention of the Port Trust, that there
was no obligation cast upon it, to have destuffed the goods when the
containers landed.
9 Relevant to the present context, there is a line of judicial precedent. In
1963, a Constitution Bench in The Trustees of the Port of Madras v K P V
Sheik Mohamed Rowther & Co.7
 [Rowther- I] upheld the power of the Board
to collect rates/charges from the steamer agent:
“There is no doubt that the shipowner is the bailee of the
shipper, the consignor, and that he is responsible for the
delivery of the goods to the consignee or a transferee
according to the terms of the bill of lading. This duty the
ship-owner discharges only when he has delivered the
goods to the consignee or such person who is entitled to
take delivery in accordance with the endorsements on the
bill of lading. Delivery to the Board is not delivery to the
consignee or such person, both because the delivery is to
be on the presentation of the Bill of lading and because the
Act contains no provision which would constitute the Board
an agent of the consignee for the purpose of taking
delivery of the goods.”
7 (1963) Supp. 2 SCR 915
9
The case revolved around the question whether the Board acted as an agent
of the consignee. The Constitution Bench held that the Board takes charge of
the goods on behalf of the ship-owner and not on behalf of the consignee. The
contention that the Board acted an agent of the consignee was rejected:
“Section 40 [of Port Trust Act 1905] speaks of the
responsibility of the Board for the loss, destruction or
deterioration of the goods of which it has taken charge as a
bailee under ss. 151, 152 and 161 of the Indian Contract
Act. Section 148 of the Contract Act states that a bailment
is the delivery of goods by one person to another for some
purpose, upon a contract that they shall, when the purpose
is accomplished, be returned or otherwise disposed of
according to the directions of the person delivering them.
The person delivering the goods is called the bailor and the
person to whom they are delivered is called the bailee. It is
clear therefore that when the Board takes charge of the
goods from the ship-owner, the ship-owner is the bailor and
the Board is the bailee, and the Board’s responsibility for
the goods thereafter is that of a bailee. The Board does not
get the goods from the consignee. It cannot be the bailee
of the consignee. It can be the agent of the consignee only
if so appointed, which is not alleged to be the case, and
even if the Board be an agent, then its liability would be as
an agent and not as a bailee. The provisions of ss. 39 and
40, therefore, further support the contention that the Board
takes charge of the goods on behalf of the shipowner and
not on behalf of the consignee, and whatever services it
performs at the time of the landing of the goods or on their
removal thereafter, are services rendered to the ship.”
10 A decision of a three-Judge Bench of this Court in Trustees of the Port
of Madras v K P V Sheikh Mohd. Rowther & Co. Pvt. Ltd.8
 [Rowther- II]
dealt with the question “whether the demurrage charges, harbour dues etc.
payable to the Port Trust of Madras were to be recovered from the consignee
of the goods or from the steamer agent”. In this case, the goods remained in
the custody of the Port Trust for a long time till they were ultimately confiscated
8 (1997) 10 SCC 285
10
by the Customs authorities. It was held that only the consignee was liable to
pay the demurrage charges. The learned Judges approved the reasoning of
the Madras High Court that:
“Once the goods are handed over to the Port Trust by the
steamer and the steamer agents have duly endorsed the
bill of lading or issued the delivery order, their obligation to
deliver the goods personally to the owner or the endorsee
comes to an end… Even though the consignee is not a
party to the contract of carriage once the property in the
goods had passed to him, he becomes liable to pay the
storage or demurrage charges as owner of the goods to
the shipowner.”
This Court also agreed with the conclusion of the High Court that the
provisions of the MPT Act cannot be so construed as to hold that the steamer
agent has undertaken the responsibility for the safety of the goods till they are
cleared by Customs and taken delivery of by the consignee. The facts in
Rowther II were distinguished from those in Rowther I.
Rowther-I was distinguished in Rowther-II on the ground that while the
charges in the former case related to services rendered by the Port Trust at
the time of the landing of the goods and their removal thereafter to its custody
those charges being for services provided for the benefit of the steamer,
Rowther-II related to demurrage charges after the goods were landed and
taken charge of by the Board and after the steamer agent had endorsed the
Bill of lading or issued a delivery order for effecting delivery to the consignee,
that is, after the property in the goods had passed to him.
11
11 In a subsequent judgment of this Court in Board of Trustees of the
Port of Bombay and Others v Sriyanesh Knitters9
, it was held that by virtue
of the definition of the term “owner” under Section 2(o) of MPT Act and the
relevant provisions of the Bills of Lading Act, the consignee of the goods
named in the Bill of lading or every endorsee of the Bill of lading for the
purpose of the MPT Act, is regarded as the owner of goods and it is from the
owner that the recovery of charges under the MPT Act is provided in respect of
such goods. It was held:
“It is the consignee which is the bailor with the Port Trust
being the consignee (sic bailee).”
12 In Forbes-I, the Bench of two learned Judges of this Court doubted the
correctness of the decision rendered in Rowther- II and referred it for
consideration to a larger Bench. By an order dated 13 August 2014, a Bench
of three judges did not see any inconsistency in Rowther- II and thus referred
the matter back to the regular Bench for further hearing with the following
observations:
“We have gone through the order whereby the matter has
been referred to this Bench.
We have noted the fact that no reason for not agreeing with
the Judgment delivered by a three-Judge Bench has been
assigned in the said order.
Moreover, upon going through the Judgment delivered in
1997 (10) SCC 285, we see no reason to disagree with the
ratio laid down in the said Judgment.
9 (1999) 7 SCC 359
12
In these circumstances, we refer the matter back to the
regular bench for further hearing as we do not see any
inconsistency in the said Judgment.”
A Bench of two Judges of this Court thereafter heard the matter and in Forbes
Forbes Campbell & Co. Ltd. v Board of Trustees, Port of Bombay10
[Forbes-II] dealt with the liability of the Steamer Agent to pay demurrage and
port charges to the Port Trust in respect of goods brought into the port and
warehoused by the Port Trust Authority. This Court opined that:
“[W]hile it is correct that the liability to pay demurrage
charges and port rent is statutory, in the absence of any
specific bar under the statute, such liability can reasonably
fall on a Steamer Agent if on a construction of the
provisions of the Act such a conclusion can be reached.
Determination of the aforesaid question really does not
hinge on the meaning of the expression “Owner” as
appearing in Section 2(o) of the Act of 1963, as has been
sought to be urged on behalf of the appellant though going
by the language of Section 2(o) and the other provisions of
the Act especially Section 42, an owner would include a
ship owner or his agent. Otherwise it is difficult to reconcile
how custody of the goods for the purpose of rendering
services under Section 42 can be entrusted to the Port
Trust authority by the owner as provided therein under
Section 42(2). At that stage the goods may still be in the
custody of the ship owner under a separate bailment with
the shipper or the consignor, as may be. Even de hors the
above question the liability to pay demurrage charges and
port rent would accrue to the account of the Steamer Agent
if a contract of bailment between the Steamer Agent and
the Port Trust authority can be held to come into existence
under Section 42(2) read with Section 43(1)(ii) of the Act of
1963.”
After examining the provisions of the MPT Act and the judgment of the
Constitution Bench in Rowther- I and of a Bench of two Judges in Sriyanesh
Knitters, the decision in Forbes-II concluded that:
10 (2015) 1 SCC 228
13
“[T]he position of law which appears to emerge is that once
the bill of lading is endorsed or the delivery order is issued
it is the consignee or endorsee who would be liable to pay
the demurrage charges and other dues of the Port Trust
authority. In all other situations the contract of bailment is
one between the Steamer Agent (bailor) and the Port Trust
Authority (bailee) giving rise to the liability of the Steamer
Agent for such charges till such time that the bill of lading
is endorsed or delivery order is issued by the Steamer
Agent.”
The decision in Sriyanesh Knitters with regard to existence of a relationship
of bailor and bailee between the consignee and the Port Trust instead of the
Steamer Agent and the Port Trust authority was held to be a “mere conclusion”
reached in the facts of the case.
13 In Rasiklal Kantilal & Co v Board of Trustee of Port of Bombay11
[Rasiklal] while considering the scheme of the MPT Act, a Bench of two
Judges of this Court observed that the Act is silent with regard to the persons
from whom demurrage and other charges could be collected. Since services
under Sections 49A to 50B are rendered only to the vessel, the Bench found it
“reasonable to interpret that only the ship and its agents are liable to pay the
rates for such services”. However, for services rendered to the goods, a lien is
created under Section 59 (1) in favour of the Port Trust, and the Port Trust is
entitled to seize and detain the goods until its charges are fully paid. While
contrasting Section 42(2) which contemplates “taking charge” (not possession)
of the goods by the Port Trust, and Section 59(1), which confers authority on
the Port Trust to seize and detain goods of which charge is taken of, the Court
11 (2017) 11 SCC 1
14
identified a lack of clarity in the twin declarations in Section 59, but refused to
“express any final opinion in this regard”.
While addressing the issue about whom the Port Trust is entitled to collect
charges from, the Court discussed Rowther-I, Rowther- II and Forbes-II.
With reference to Rowther- I, this Court held:
“Rowther-I is not an authority for the proposition that a
Board could collect rates due for the services rendered to
goods only from the steamer agent. Nor did this Court deal
with the question whether the title in the goods is a
relevant factor for determining a Board’s right to collect the
rates... Rowther-I is no authority for the proposition that
until the title in goods passed to the consignee the liability
to pay various rates payable to a Board for the services
rendered in respect of goods falls exclusively on the
steamer agent.”
The Court opined that it agreed with the conclusions laid down in Rowther-II
and Forbes-II, that “a Board could recover rates due, either from the steamer
agent or the consignee”. However, the Court held that the question of title of
the goods and the point of time at which the title passes to the consignee is
irrelevant for determining the authority of a Board to recover the amounts due
to it. The Court held:
“As rightly opined in Forbes [II] case, there is no bailor and
bailee relationship between the Board (the 1st respondent)
and the consignee (the appellant); either voluntarily or
statutorily compelled but such a relationship exists
between the 1st respondent and the owner of the ship
(through the steamer agent). It is possible in a given case
where the consignee or any other person (such as the
appellant herein) claiming through the consignor,
eventually may not come forward to take delivery of the
goods for a variety of reasons - considerations of economy
or supervening disability imposed by law etc. Therefore, in
such cases to say that merely because the bill of lading is
endorsed or the delivery order is issued, the consignor or
his agent is absolved of the responsibility for payment (of
rates or rent for services rendered w.r.t goods) would result
in a situation that the Board would incur expenses without
15
any legal right to recover such amount from the consignor
and be driven to litigation for recovering the same from the
consignee who did not take delivery of the goods with
whom the Board had no contract of bailment and
consequently no contractual obligation to pay the ‘rates or
rent’.”
It was further held that:
“Title to the goods is irrelevant even in the cases of a
bailment arising under a contract. Any person who is
capable of giving physical possession of goods can enter
into a contract of bailment and create bailment… The
obligation of the bailee to return the bailed goods when the
purpose of bailment is accomplished and the obligation of
the bailor to pay the bailee “the necessary expenses
incurred by him for the purpose of the bailment” in our
opinion would attend not only a bailment by contract but
every kind of bailment… If the bailor has such an obligation
to pay the bailee, any person claiming through the bailor
must necessarily be bound by such an obligation unless
the bailee releases such person from such an obligation. A
consignee is a person claiming through the consignor
(bailor).”
Dealing with the import of goods into India by ship, the Bench referred to
Section 1 of the Indian Bills of Lading Act, 1856 and held thus:
“... the 1856 Act enacts a fiction that the consignee to
whom the property in the goods shall pass shall be
“subject to the same liabilities in respect of such goods as
if the contract contained in the bill of lading had been made
with himself”. Bill of lading is evidence of a contract
between the shipper (consignor) and the owner of the ship
by which the owner of the ship agrees to transport the
goods delivered by the consignor to a specified destination
and deliver it to the consignee. Delivery of goods pursuant
to a bill of lading creates a bailment between the shipper
and the owner of the ship. Obviously the legislature knew
that a consignee under a bill of lading is a 3rd party to the
contract but intrinsically connected with the transaction and
thought it necessary to specify the rights and obligations of
the consignee. Hence, the fiction under the 1856 Act, that
the moment the property in goods passes to the
consignee, the liabilities of the consignee in respect of
such goods would be the same as those of the consignor,
as if the contract contained in the bill of lading had been
made with the consignee.”
16
The Bench came to the conclusion that:
“The consequence is that the 1st respondent (sub-bailee)
would be entitled to enforce its rights flowing from the
Bailment between the shipowner and the 1st respondent
against the consignee and recover expenses incurred by it
in connection with the bailment from the consignee. The
terms and conditions of the contract between the
consignor or person claiming delivery of the goods are
irrelevant for determining the right of the 1st respondent to
recover its dues. The obligations/liability of the consignee
is determined by the statute. But the said obligation is not
exclusive to the consignee. The consignor (bailor) is not
relieved of the obligation to pay by virtue of Section 158 of
the Contract Act the expenses incurred by the 1st
respondent... At this juncture, we must point out that the
declaration under Section 42(7) absolving the owner of the
ship and his agents is limited only to the obligations owed
by the bailor to the consignee not to the sub bailor like the
1st respondent.”
The Bench opined that if the MPT Act authorises the Port Trust “to recover its
dues by bailing the goods under bailment, in those cases where the
consignee does not turn up to take the delivery of the goods within the time
stipulated under Sections 61 or 62 of the Act, to deny the right to demand and
recover the amounts due from the consignee when he seeks delivery of the
goods under bailment would be illogical and inconsistent with the scheme of
the Act” (sic):
“Such right, in our view, undoubtedly enables the 1st
respondent to claim various amounts due to it, from any
person claiming delivery of the goods either the bailor or a
person claiming through the bailor for the services
rendered w.r.t. the goods. (sic)”
14 Analysing the above judgments, the following position emerges:
17
(i) The decisions in Rowther- I, Rowther- II, Sriyanesh Knitters, ForbesII
and Rasiklal do not seem to follow a consistent line about whom the
Port Trust has to fasten the liability for payment of its charges;
(ii) The Constitution Bench judgment in Rowther-I holds that when Port
Trust takes charge of the goods from the ship-owner, the ship-owner is
the bailor and the Port Trust is the bailee. While the Bench of two
Judges in Sriyanesh Knitters holds that there comes into existence the
relationship of bailor and bailee between the consignee and the Port
Trust, the decision in Forbes-II disagrees with this view of Sriyanesh
Knitters. Rasiklal opines that enquiry into such relationship is irrelevant
in determining the right of a Port Trust to recover its dues;
(iii) While the decision in Sriyanesh Knitters was based on the
interpretation of the term “owner” under Section 2(o) of the MPT Act, the
judgment in Forbes-II and Rasiklal do not find the question of
interpretation of the term “owner” to be relevant;
(iv) While Forbes-II relies upon the Constitution Bench decision in RowtherI
to come to its conclusions, Rasiklal does not find Rowther-I to be an
authority for the proposition that until the title in goods is passed to the
consignee, the liability to pay various charges payable to a Port Trust,
for its services in respect of goods, falls exclusively on the steamer
agent;
18
(v) In Rowther-II, it was held that once the goods are handed over to the
Port Trust by the steamer and the steamer agents have duly endorsed
the bill of lading or issued the delivery order, their obligation to deliver
the goods personally to the owner or the endorsee comes to an end.
The decision in Rasiklal, which has been delivered after the reference
of Forbes-I was disposed of, takes a contrary view that in cases where
the consignee does not come to take delivery of goods, the position of
law laid down by Rowther-II would result in a situation that the Port
Trust would incur expenses without any legal right to recover such
amount from the consignor, with whom there was no contractual
obligation; and
(vi) The Bench of two Judges in Rasiklal opined that it agrees with the
conclusions recorded in Rowther-II and Forbes-II that a Port Trust
could recover the rates due, either from the steamer agent or the
consignee. However, the holding in Rowther-II finds only the consignee
to be liable.
15 Taking note of the above inconsistencies in the judgments which have
been delivered after the pronouncement by the Constitution Bench in
Rowther-I, we are inclined to the view that the following issues need to be
resolved by a larger Bench:
a) Whether in the interpretation of the provision of Section 2(o) of the MPT
Act, the question of title of goods, and the point of time at which title
19
passes to the consignee is relevant to determine the liability of the
consignee or steamer agent in respect of charges to be paid to the Port
Trust;
b) Whether a consignor or a steamer agent is absolved of the responsibility
to pay charges due to a Port Trust, for its services in respect of goods
which are not cleared by the consignee, once the Bill of lading is
endorsed or the delivery order is issued;
c) Whether a steamer agent can be made liable for payment of storage
charges/demurrage, etc. in respect of goods which are not cleared by
the consignee, where the steamer agent has not issued a delivery order;
if so, to what extent;
d) What are the principles which determine whether a Port Trust is entitled
to recover its dues, from the steamer agent or the consignee; and
e) While the Port Trust does have certain statutory obligations with regard
to the goods entrusted to it, whether there is any obligation, either
statutory or contractual, that obliges the Port Trust to de-stuff every
container that is entrusted to it and return the empty containers to the
shipping agent.
The larger Bench may deal with any additional issues relevant to the context,
as it deems necessary.
20
16 We request the Registry to place the papers before the Hon’ble Chief
Justice of India for such administrative directions as may be considered
appropriate.

................................................J
 [R K AGRAWAL]
 .................................................J
 [Dr D Y CHANDRACHUD]
New Delhi;
7 March, 2018

service tax- whether the value of free supplies of diesel and explosives in respect of the service of ‘Site Formation and Clearance Service’ can be included for the purpose of assessment to service tax under Section 67 of the Act. These assessees had not availed the benefit of aforesaid Notifications Nos. 15/2004 and 4/2005. Therefore, the issue has to be adjudged simply by referring to Section 67 of the Act. We have already held above 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 Civil Appeal No. 2013 of 2014 with Ors. Page 43 of 44 explosives would not warrant inclusion while arriving at the gross amount charged on its service tax is to be paid.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2013 OF 2014
UNION OF INDIA & ANR. .....APPELLANT(S)
VERSUS
M/S. INTERCONTINENTAL CONSULTANTS
AND TECHNOCRATS PVT. LTD. .....RESPONDENT(S)
W I T H
CIVIL APPEAL NOS. 295-299 OF 2014
CIVIL APPEAL NO. 2021 OF 2014
CIVIL APPEAL NOS. 4340-4341 OF 2014
CIVIL APPEAL NO. 6866 OF 2014
CIVIL APPEAL NO. 7685 OF 2014
CIVIL APPEAL NO. 7688 OF 2014
CIVIL APPEAL NO. 8056 OF 2015
CIVIL APPEAL NO. 3360 OF 2015
TRANSFER PETITION (CIVIL) NOS. 1043-1045 OF 2017
CIVIL APPEAL NO. 6090 OF 2017
CIVIL APPEAL NOS. 10626-10627 OF 2017
TRANSFER PETITION (CIVIL) NOS. 1932-1934 OF 2017
Civil Appeal No. 2013 of 2014 with Ors. Page 1 of 44
CIVIL APPEAL NO. 6864 OF 2014
CIVIL APPEAL NO. 6865 OF 2014
CIVIL APPEAL NOS. 4536-4537 OF 2016
CIVIL APPEAL NO. 5130 OF 2016
CIVIL APPEAL NO. 4975 OF 2016
CIVIL APPEAL NO. 5453 OF 2016
CIVIL APPEAL NOS. 10223-10224 OF 2017
A N D
CIVIL APPEAL NO. 5444 OF 2017
J U D G M E N T
A.K. SIKRI, J.
In all these appeals, legal issue that needs determination is
almost identical, though there may be little variation on facts.
This difference pertains to the nature of services provided by the
respondents/assessees who are all covered by the service tax.
The fringe diferences in the nature of services, however, nature of
differences, however, has no impact on the final outcome.
2) All the assessees are paying service tax. The services which
these assessees are rendering broadly fall in the following four
Civil Appeal No. 2013 of 2014 with Ors. Page 2 of 44
categories:
(a) Consulting engineering services.
(b) Share transfer agency services.
(c) Custom house agent services covered by the head ‘clearing
and forwarding agent’.
(d) The site formation and clearances, excavation and earth
moving and demolition services.
3) While rendering the aforesaid services, the assessees are also
getting reimbursement in respect of certain activities undertaken
by them which according to them is not includable to arrive at
‘gross value’ charged from their clients. As per Rule 5 of the
Service Tax (Determination of Value) Rules, 2006 (hereinafter
referred to as the ‘Rules’), the value of the said reimbursable
activities is also to be included as part of services provided by
these respondents. Writ petitions were filed by the assessees
challenging the vires of Rule 5 of the Rules as unconstitutional as
well as ultra vires the provisions of Sections 66 and 67 of Chapter
V of the Finance Act, 1994 (hereinafter referred to as the ‘Act’).
The High Court of Delhi has, by the judgment dated November
30, 2012, accepted the said challenge and declared Rule 5 to be
ultra vires these provisions. Other cases have met similar results
by riding on the judgment dated November 30, 2012. This
Civil Appeal No. 2013 of 2014 with Ors. Page 3 of 44
necessitates examining the the correctness of the judgment of the
Delhi High Court and outocme thereof would determine the fate of
all these appeals/transfer petitions.
4) This judgment was rendered by the High court in the writ petition
filed by M/s. Intercontinental Consultants and Technocrats Pvt.
Ltd. out of which Civil Appeal No. 2013 of 2014 arises. Therefore,
for our purpose, it would suffice to advert to the facts of this
appeal and take note of the reasons which have prevailed with
the High Court in arriving at this conclusion.
5) The assessee M/s. Intercontinental Consultants and Technocrats
Pvt. Ltd. is a provider of consulting engineering services. It
specialises in highways, structures, airports, urban and rural
infrastructural projects and is engaged in various road projects
outside and inside India. In the course of the carrying on of its
business, the petitioner rendered consultancy services in respect
of highway projects to the National Highway Authority of India
(NHAI). The petitioner receives payments not only for its service
but is also reimbursed expenses incurred by it such as air travel,
hotel stay, etc. It was paying service tax in respect of amounts
received by it for services rendered to its clients. It was not paying
any service tax in respect of the expenses incurred by it, which
Civil Appeal No. 2013 of 2014 with Ors. Page 4 of 44
was reimbursed by the clients. On 19.10.2007, the
Superintendent (Audit) Group II (Service Tax), New Delhi issued a
letter to the petitioner on the subject “service tax audit for the
financial year 2002-03 to 2006-07. In this letter, it was mentioned
by the appellant that service tax was liable to be charged on the
gross value including reimbursable and out of pocket expenses
like travelling, lodging and boarding etc. and the respondent was
directed to deposit the due service tax along with interest @13%
under Sections 73 and 75 respectively of the Act. In response,
the respondent provided month-wise detail of the professional
income as well as reimbursable out of pocket expenses for the
period mentioned in the aforesaid letter. Thereafter, a show
cause notice dated March 17, 2008 was issued by the
Commissioner, Service Tax, Commissionerate vide which the
respondent was asked to show cause as to why the service tax
should not be recovered by including the amounts of
reimbursable which were received by the respondent, pointing out
these were to be included while arriving at the gross value as per
provisions of Rule 5(1) of the Rules.
6) Rule 5 was brought into existence w.e.f. June 01, 2007. The
demand which was made in the show cause notice was covered
Civil Appeal No. 2013 of 2014 with Ors. Page 5 of 44
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
Civil Appeal No. 2013 of 2014 with Ors. Page 6 of 44
purpose of charging service tax on the said service.
(2) Subject to the provisions of sub rule (1), the
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
Civil Appeal No. 2013 of 2014 with Ors. Page 7 of 44
recipient of service to act as his pure agent to
incur expenditure or costs in the course of
providing taxable service;
 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
Civil Appeal No. 2013 of 2014 with Ors. Page 8 of 44
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.
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
Civil Appeal No. 2013 of 2014 with Ors. Page 9 of 44
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 01, 2006. Since the cases before us involve period prior to
the 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;
Civil Appeal No. 2013 of 2014 with Ors. Page 10 of 44
(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;
(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;
(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
Civil Appeal No. 2013 of 2014 with Ors. Page 11 of 44
(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 01, 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 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 ay 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
Civil Appeal No. 2013 of 2014 with Ors. Page 12 of 44
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.”
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
Civil Appeal No. 2013 of 2014 with Ors. Page 13 of 44
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
Civil Appeal No. 2013 of 2014 with Ors. Page 14 of 44
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 enactment2
. 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.3
.
11) Mr. K. Radhakrishnan, learned senior counsel argued for the
appellant, ably assisted by Ms. Nisha Bagchi, advocate who also
made significant contribution by arguing some of the nuances of
the issue involved. Submission of the learned counsel appearing
for the appellant/Department was that prior to April 19, 2006 i.e. in
the absence of Rule 5 of the Rules, the value of taxable services
was covered by Section 67 of the Act. As per this Section, the
value of taxable services in relation to consulting engineering
services provided or to be provided by a consulting engineer to
1 (1970) 77 ITR 107
2 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. v. 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
3 (1961) 3 WLR 788 (QB)
Civil Appeal No. 2013 of 2014 with Ors. Page 15 of 44
the client shall be the gross amount charged for a consideration
or in money from the client in respect of engineering services.
The expression ‘gross amount charged’ would clearly include all
the amounts which were charged by the service provider and
would not be limited to the remuneration received from the
customer. The very connotation ‘gross amount charged’ denotes
the total amount which is received in rendering those services
and would include the other amounts like transportation, office
rent, office appliances, furniture and equipments etc. It was
submitted that this expenditure or cost would be part of
consideration for taxable services. It was, thus, argued that
essential input cost had to be included in arriving at gross amount
charged by a service provider.
12) It was further submitted that Section 67 of the Act was amended
w.e.f. May 01, 2006 and this also retained the concept of ‘the
gross amount charged’ for the purpose of arriving at valuation on
which the service tax is to be paid. The learned counsel pointed
out that sub-section (4) of amended Section 67 categorically
provides that the value has to be determined in such a manner as
may be prescribed and in pursuant thereto, Rule 5 of the Rules
which came into effect from June 01, 2007, provided for ‘inclusion
Civil Appeal No. 2013 of 2014 with Ors. Page 16 of 44
in or exclusion from value of certain expenditure or costs’. It was
submitted that there was no dispute that as per this Rule, all such
expenditure or costs which are incurred by the service provider in
the course of providing taxable services are to be treated as
consideration for the taxable services provided or to be provided
for arriving at valuation for the purpose of charging service tax,
except those costs which were specifically excluded under subrule
(2) of Rule 5. Submission was that since Section 67
specifically lays down the principle of gross amount charged by a
service provider for the services provided or to be provided, Rule
5 did not go contrary to Section 67 as it only mentions what would
be the meaning of gross amount charged.
13) In the aid of this submission, the learned counsel sought to take
help from principle laid down in excise law and submitted that it is
held by this Court in Union of India & Ors. v. Bengal Shrachi
Housing Development Limited & Anr.4
 that same principles as
applicable in excise law are applicable while examining service
tax matters. Reliance was placed on paragraph 22 of the said
judgment to support this proposition. However, we may point out
at this stage itself that the context in which the observations were
made were entirely different. The issue was as to whether
4 (2018) 1 SCC 311
Civil Appeal No. 2013 of 2014 with Ors. Page 17 of 44
service tax, which is an indirect tax, can be passed on by the
service provider to the recepient of the service and, in this hue,
the matter was discussed, as can be seen from the combined
reading of paragraphs 21 and 22 which are to the following effect:
“21. It is thus clear that the judgments of this Court which
referred to service tax being an indirect tax have reference
only to service tax being an indirect tax in economic theory
and not constitutional law. The fact that service tax may not,
in given circumstances, be passed on by the service
provider to the recipient of the service would not, therefore,
make such tax any the less a service tax. It is important to
bear this in mind, as the main prop of Shri Jaideep Gupta's
argument is that service tax being an indirect tax which
must be passed on by virtue of the judgments of this Court,
would make the recipient of the service the person on whom
the tax is primarily leviable.
22. Let us now examine some of the judgments relating to
another indirect tax, namely, excise duty. Like service tax,
excise duty is also in the economic sense, an indirect tax.
The levy is on manufacture of goods; and the taxable
person is usually the manufacturer of those goods.
InCentral Provinces and Berar Sales of Motor Spirit and
Lubricants Taxation Act, 1938, In re, the Federal Court
decided, through Maurice Gwyer, C.J., that excise duty
under the Government of India Act, 1935 is a power to
impose duty of excise upon the manufacturer of excisable
articles at the stage of or in connection with manufacture or
production. In a separate judgment, Jayakar, J. held that all
duties of excise are levied on manufacture of excisable
goods and can be levied and collected at any subsequent
stage up to consumption.”
14) It was also submitted that while dealing with the valuation of a
taxable service, the provision which deals with valuation has to be
taken into consideration and no assistance can be taken from
charging section, as held in Union of India & Ors. v. Bombay
Civil Appeal No. 2013 of 2014 with Ors. Page 18 of 44
Tyre International Limited & Ors.5
:
“8. Mr N.A. Palkhivala, learned counsel for the
assessees, has propounded three principles which, he
contends, form the essential characteristics of a duty
of excise. Firstly, he says, excise is a tax on
manufacture or production and not on anything else.
Secondly, uniformity of incidence is a basic
characteristic of excise. And thirdly, the exclusion of
post-manufacturing expenses and post-manufacturing
profits is necessarily involved in the first principle and
helps to achieve the second. Learned counsel urges
that where excise duty is levied on an ad valorem
basis the value on which such duty is levied is a
“conceptual value”, and that the conceptual nature is
borne out by the circumstance that the identity of the
manufacturer and the identity of the goods as well as
the actual wholesale price charged by the
manufacturer are not the determining factors. It is
urged that the old Section 4(a) clearly indicates that a
conceptual value forms the basis of the levy, and that
the actual wholesale price charged by the particular
assessee cannot be the basis of the excise levy. It is
said that the criterion adopted in clause (a) succeeds
in producing uniform taxation, whether the assessees
are manufacturers who sell their goods in wholesale,
semi-wholesale or in retail, whether they have a vast
selling and marketing network or have none, whether
they sell at depots and branches or sell at the factory
gate, and whether they load the ex-factory price with
post-manufacturing expenses and profits or do not do
so. Because the value of the article rests on a
conceptual base, it is urged, the result of the
assessment under Section 4(a) cannot be different
from the result of an assessment under Section 4(b).
The contention is that the principle of uniformity of
taxation requires the exclusion of post-manufacturing
expenses and profits, a factor which would vary from
one manufacturer to another. It is pointed out that
such exclusion is necessary to create a direct and
immediate nexus between the levy and the
manufacturing activity, and to bring about a uniformity
in the incidence of the levy. Learned counsel contends
that the position is the same under the new Section 4
which, he says, must need be so because of the
5 (1984) 1 SCC 467
Civil Appeal No. 2013 of 2014 with Ors. Page 19 of 44
fundamental nature of the principles propounded
earlier. Referring to the actual language of the new
Section 4(1)(a), it is pointed out that the expression
“normal price” therein means “normal for the purposes
of excise”, that is to say, that the price must exclude
post-manufacturing expenses and post-manufacturing
profit and must not be loaded with any extraneous
element. It is conceded, however, that under the new
Section 4(1)(a) there is no attempt to preserve
uniformity as regards the amount of duty between one
manufacturer and another, but it is urged that the
basis on which the value is determined is constituted
by the same conceptual criterion, that postmanufacturing
expenses and post-manufacturing profit
must be excluded. Considerable emphasis has been
laid on the submission that as excise duty is a tax on
the manufacture or production of goods it must be a
tax intimately linked with the manufacture or
production of the excisable article and, therefore, it
can be imposed only on the assessable value
determined with reference to the excisable article at
the stage of completed manufacture and to no point
beyond. To preserve this intimate link or nexus
between the nature of the tax and the assessment of
the tax, it is urged that all extraneous elements
included in the “value” in the nature of postmanufacturing
expenses and post-manufacturing
profits have to be off-loaded. It is pointed out that
factors such as volume, quantity and weight, which
enter into the measure of the tax, are intimately linked
with the manufacturing activity, and that the power of
Parliament under Entry 84 of List I of the Seventh
Schedule to the Constitution to legislate in respect of
“value” is restricted by the conceptual need to link the
basis for determining the measure of the tax with the
very nature of the tax.
xxx xxx xxx
10. Besides this fundamental issue, there are other
points of dispute, principally in respect of the
connotation of the expression “related person” in the
new Section 4 as well as the nature of the deductions
which can be claimed by the assessee as postmanufacturing
expenses and post-manufacturing profit
from the price for the purpose of determining the
“value”.
Civil Appeal No. 2013 of 2014 with Ors. Page 20 of 44
11. The submissions made by learned counsel for the
parties in support of their respective contentions cover
a wide area, and several questions of a fundamental
nature have been raised. We consider it necessary to
deal with them because they enter into and determine
the conclusions reached by us.
12. We think it appropriate that at the very beginning
we should briefly indicate the concept of a duty of
excise. Both Entry 45 of List I of the Seventh Schedule
to the Government of India Act, 1935, under which the
original Central Excises and Salt Act was enacted, and
Entry 84 of List I of the Seventh Schedule to the
Constitution under which the Amendment Act of 1973
was enacted, refer to “Duties of excise on... goods
manufactured or produced in India”. A duty of excise,
according to the Federal Court in The Central
Provinces and Berar Sales of Motor Spirit and
Lubricants Taxation Act, 1938 [AIR 1939 FC 1, 6 :
1939 FCR 18] is a duty ordinarily levied on the
manufacturer or producer in respect of the
manufacture or production of the commodity taxed. A
distinction was drawn between the nature of the tax
and the point at which it was collected, and Gwyer,
C.J. observed that theoretically “. . .there can be no
reason in theory why an excise duty should not be
imposed even on the retail sale of an article, if the
taxing Act so provides. Subject always to the
legislative competence of the taxing authority, a duty
on home-produced goods will obviously be imposed at
the stage which the authority finds to be the most
convenient and the most lucrative, wherever it may be;
but that is a matter of the machinery of collection, and
does not affect the essential nature of the tax. The
ultimate incidence of an excise duty, a typical indirect
tax, must always be on the consumer, who pays as he
consumes or expends; and it continues to be an
excise duty, that is, a duty on home-produced or
home-manufactured goods, no matter at what stage it
is collected….” (emphasis supplied). The position was
explained further in Province of Madras v. Boddu
Paidanna and Sons [1942 FCR 90, 101 : AIR 1942 FC
33] where the Federal Court observed:
“… There is in theory nothing to prevent the
Central Legislature from imposing a duty of
Civil Appeal No. 2013 of 2014 with Ors. Page 21 of 44
excise on a commodity as soon as it comes into
existence, no matter what happens to it
afterwards, whether it be sold, consumed,
destroyed, or given away. A taxing authority will
not ordinarily impose such a duty, because it is
much more convenient administratively to
collect the duty (as in the case of most of the
Indian Excise Acts) when the commodity leaves
the factory for the first time, and also because
the duty is intended to be an indirect duty which
the manufacturer or producer is to pass on to
the ultimate consumer, which he could not do if
the commodity had, for example, been
destroyed in the factory itself. It is the fact of
manufacture which attracts the duty, even
though it may be collected later;….”
The observations show that while the nature of an
excise is indicated by the fact that it is imposed in
respect of the manufacture or production of an article,
the point at which it is collected is not determined by
the point of time when its manufacture is completed
but will rest on considerations of administrative
convenience, and that generally it is collected when
the article leaves the factory for the first time. In other
words, the circumstance that the article becomes the
object of assessment when it is sold by the
manufacturer does not detract from its true nature,
that it is a levy on the fact of manufacture. In a
subsequent case, Governor-General-inCouncil
v. Province of Madras [1945 FCR 179 : AIR
1945 FC 98] , the Privy Council referred to
both Central Provinces and Berar Sales of Motor Spirit
and Lubricants Taxation Act, 1938 [AIR 1939 FC 1, 6 :
1939 FCR 18] and Province of Madras v. Boddu
Paidanna and Sons [1942 FCR 90, 101 : AIR 1942 FC
33] and affirmed that when excise was levied on a
manufacturer at the point of the first sale by him “that
may be because the taxation authority imposing a duty
of excise finds it convenient to impose that duty at the
moment when the excisable article leaves the factory
or workshop for the first time on the occasion of its
sale. But that method of collecting the tax is an
accident of administration; it is not of the essence of
the duty of excise, which is attracted by the
manufacture itself. This Court had occasion to
consider a similar question in R.C. Jall v. Union of
Civil Appeal No. 2013 of 2014 with Ors. Page 22 of 44
India [AIR 1962 SC 1281 : 1962 Supp (3) SCR 436,
451] . In that case, the Central Government was
authorised by an Ordinance to levy and collect as a
cess on coal and coke despatched from collieries in
British India a duty of excise at a specified rate. Rule 3
made under the Ordinance empowered the
Government to impose a duty of excise on coal and
coke when such coal and coke was despatched by rail
from the collieries of the coke plants, and the duty was
to be collected by the Railway Administration by
means of a surcharge on freight either from the
consignor or consignee. It was contended by the
assessee that the excise duty could not legally be
levied on the consignee who had nothing to do with
the manufacture or production of coal. The Court
remarked:
“The argument confuses the incidence of
taxation with the machinery provided for the
collection thereof,”
and reference was made to In re the Central
Provinces and Berar Act 14 of 1938[AIR 1939 FC 1,
6 : 1939 FCR 18] , Province of Madras v. Boddu
Paidanna and Sons [1942 FCR 90, 101 : AIR 1942 FC
33] and Governor-General in Council v. Province of
Madras [1945 FCR 179 : AIR 1945 FC 98] . This Court
then summarised the law as follows:
“… Excise duty is primarily a duty on the
production or manufacture of goods produced or
manufactured within the country. It is an indirect
duty which the manufacturer or producer passes
on to the ultimate consumer, that is, its ultimate
incidence will always be on the consumer.
Therefore, subject always to the legislative
competence of the taxing authority, the said tax
can be levied at a convenient stage so long as
the character of the impost, that is, it is a duty
on the manufacture or production, is not lost.
The method of collection does not affect the
essence of the duty, but only relates to the
machinery of collection for administrative
convenience.”
Other cases followed where the nature of excise duty
was reaffirmed in the terms set out earlier, and
Civil Appeal No. 2013 of 2014 with Ors. Page 23 of 44
reference may be made to In re Bill to Amend
Section 20 of the Sea Customs Act, 1878 and
Section 3 of the Central Excises And Salt Act, 1944
[AIR 1963 SC 1760 : (1964) 3 SCR 787] ; Union of
India v. Delhi Cloth & General Mills [AIR 1963 SC
791 : 1963 Supp (1) SCR 586] ; Guruswamy &
Co. v. State of Mysore [AIR 1967 SC 1512 : (1967) 1
SCR 548] and South Bihar Sugar Mills Ltd. v. Union of
India [AIR 1968 SC 922 : (1968) 3 SCR 21] .
xxx xxx xxx
17. A contention was raised for some of the
assessees, that the measure was to be found by
reading Section 3 with Section 4, thus drawing the
ingredients of Section 3 into the exercise. We are
unable to agree. We are concerned with Section 3(1),
and we find nothing there which clothes the provision
with a dual character, a charging provision as well as a
provision defining the measure of the charge.
xxx xxx xxx
35. We have examined the principles of an excise levy
and have considered the statutory construction of the
Act, before and after its amendment, in view of the
three propositions formulated, on behalf of the
assessees, as principles constituting the essential
characteristics of a duty of excise. It is apparent that
the first proposition, that excise is a tax on the
manufacture or production of goods, and not on
anything else, is indisputable and is supported by a
catena of cases beginning with The Central Provinces
and Berar Sales of Motor Spirit and Lubricants
Taxation Act, 1938 [AIR 1939 FC 1, 6 : 1939 FCR 18] .
As regards the second proposition. that uniformity of
incidence is a basic characteristic of excise, we are
inclined to think that the accuracy of the proposition
depends on the level at which the statute rests it. We
shall discuss that presently. As to the third proposition,
that the exclusion of post-manufacturing expenses
and post-manufacturing profit is necessarily involved
in the first principle does not inevitably follow. The
exclusion of post-manufacturing expenses and postmanufacturing
profits is a matter pertaining to the
ascertainment of the “value” of the excisable article,
and not to the nature of the excise duty, and as we
Civil Appeal No. 2013 of 2014 with Ors. Page 24 of 44
have explained, the standard adopted by the
Legislature for determining the “value” may possess a
broader base than that on which the charging
provision proceeds. The acceptance of the further
statement contained in the formulation of the third
proposition, that the exclusion of post-manufacturing
expenses and post-manufacturing profits helps to
achieve uniformity of incidence in the levy of excise
duty, depends on what is the point at which such
uniformity of incidence is contemplated. It is not
necessarily involved at the stage of sale of the article
by the manufacturer because we find, for example,
that under the amended Section 3(3) of the Central
Excises and Salt Act, different tariff values may be
fixed not only (a) for different classes or descriptions of
the same excisable goods, but also (b) for excisable
goods of the same class or description (i) produced or
manufactured by different classes of producers or
manufacturers, or (ii) sold to different classes of
buyers. That the “value” of excisable goods
determined under the new Section 4(1)(a) may also
vary according to certain circumstances is evident
from the three clauses of the proviso to that clause.
Clause (i) recognises that in the normal practice of
wholesale trade the same class of goods may be sold
by the assessee at different prices to different classes
of buyers; in that event, each such price shall, subject
to the other conditions of clause (a), be deemed to be
the normal price of such goods in relation to each
class of buyers. Clause (ii) provides that where the
goods are sold in wholesale at a price fixed under any
law or at a price being the maximum, fixed under any
such law, then the price or the maximum price, as the
case may be, so fixed, shall in relation to the goods be
deemed to be the normal price thereof. Under clause
(iii), where the goods are sold in the course of
wholesale trade by the assessee to or through a
related person, the normal price shall be the price at
which the goods are sold by the related person in the
course of wholesale trade at the time of removal to
dealers (not being related persons) or where such
goods are not sold to such dealers, to dealers (being
related persons) who sell such goods in retail. The
verity of the three principles propounded by learned
counsel for the assessees has been, as indeed it had
to be, examined in the context of the Act before and
after its amendment. For the case of the assessees is
Civil Appeal No. 2013 of 2014 with Ors. Page 25 of 44
that the amendment has made no material change in
the basic scheme of the levy and the provisions for
determining the value of the excisable article.”
15) It was, thus, argued that the High Court had committed serious
error in relying upon Section 66 of the Act (which is a charging
section) while interpreting Section 67 of the Act, or for that matter,
while examining the validity of Rule 5 of the Rules. The learned
counsel also relied upon the dictionary meaning that is given to
the word ‘gross amount’. At the end, it was submitted that
Section 67 which uses the term ‘any amount’ would include
quantum as well as the nature of the amount and, therefore, cost
for providing services was rightly included in Rule 5, which was
not ultra vires Section 67 of the Act.
16) Mr. J.K. Mittal, Advocate, appeared for M/s. Intercontinental
Consultants and Technocrats Pvt. Ltd. He argued with emphasis
that the impugned judgment of the High Court was perfectly in
tune with legal position and did not call for any interference. At
the outset, he pointed out that the Parliament has again amended
Section 67 of the Act by the Finance Act, 2015 w.e.f. May 14,
2015. By this amendment, explanation has been added which
now lays down that consideration includes the reimbursement of
expenditure or cost incurred by the service provider. Taking clue
Civil Appeal No. 2013 of 2014 with Ors. Page 26 of 44
therefrom, he developed the argument that for the first time, w.e.f.
May 14, 2015, reimbursement of expenditure or cost incurred by
the service provider gets included under the expression
‘consideration’, which legal regime did not prevail prior to May 14,
2015. Therefore, for the period in question, the ‘consideration’
was having limited sphere, viz. It was only in respect of taxable
services provided or to be provided. On that basis, submission
was that for the period in question that is covered by these
appeals, there could not be any service tax on reimbursed
expenses as Section 67 of the Act did not provide for such an
inclusion. Mr. Mittal also referred to para 2.4 of
Circular/Instructions F. No. B-43/5/97-TRU dated June 6, 1997
wherein it is clarified that ‘...various other reimbursable expenses
incurred are not to be included for computing the service tax”.
17) Coming to the main arguments revolving around Sections 66 and
67, he submitted that the High Court was right in holding that as
per Section 66 which was a charging section, service tax is to be
charged only on the ‘value of taxable services’. Likewise, Section
67 which deals with valuation of taxable service categorically
mentions that it was only on the gross amount charged for
providing ‘such’ a taxable service. Therefore, any amount
collected which is not for providing such taxable service could not
Civil Appeal No. 2013 of 2014 with Ors. Page 27 of 44
be brought within the tax net. Further, w.e.f. April 18, 2006, as
per Explanation (c) to Section 67, “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.” Whereas prior to April 18, 2006, as
per Explanation 3 to Section 67, - “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.” Thus,
levy on taxable services were not levied at once, but tax was
levied at different point of time, tax was levied on difference
person and also values in many taxable services was
substantially exempted. He demonstrated it from the following
table:
Sl.
No.
Taxable Services Subclause
of 65
(105)
Date of
levy
Tax
Rate
1 Consulting Engineer
Service
(g) 7-7-1997
Civil Appeal No. 2013 of 2014 with Ors. Page 28 of 44
2 Rent-a-Cab services by a
person engage in business
of renting of cabs
(o) 16-7-1997 *
3 Transport of Passenger by
Air by an aircraft operator
(a) International
(b) Domestic
(zzzo)
1-5-2006
1-7-2010
**
4 Renting of immovable
property
(zzzz) 1-7-2007
5 Restaurant services (zzzzy) 1-5-2011 ***
6 Accommodation services
by Hotel
(zzzzw) 1-5-2011 ****
7 Telephone Services/
Telecommunication
services by Telegraph
Authority
(b),
(zzzx)
1-7-1994,
1-6-2007
Notes :
* Service Tax was leviable only on 40% of value, 60%
value was exempted.
** Service Tax was leviable only on 40% of value, 60%
value was exempted, but prior to 01-04-2012, tax was
only on 10% of value of tickets.
*** Service Tax was leviable only on 30% of value,
70% value was exempted.
**** Service Tax was leviable only on 50% of value,
50% value was exempted.
18) Following judgments were referred to and relied upon by Mr.
Mittal for placating the aforesaid submissions:
(a) In the first instance, reference was made to the Constitution
Bench judgment in the case of Mathuram Agrawal v. State of
Madhya Pradesh6
 wherein this Court held:
“12. ... The statute should clearly and unambiguously
6 (1999) 8 SCC 667
Civil Appeal No. 2013 of 2014 with Ors. Page 29 of 44
convey the three components of the tax law i.e. the
subject of the tax, the person who is liable to pay the
tax and the rate at which the tax is to be paid. If there
is any ambiguity regarding any of these ingredients in
a taxation statute then there is no tax in law. Then it is
for the legislature to do the needful in the matter.”
(b) The learned counsel also relied upon the following
observations in case of Govind Saran Ganga Saran v.
Commissioner of Sales Tax & Ors.7
:
“6. The components which enter into the concept of a
tax are well known. The first is the character of the
imposition known by its nature which prescribes the
taxable event attracting the levy, the second is a clear
indication of the person on whom the levy is imposed
and who is obliged to pay the tax, the third is the rate
at which the tax is imposed, and the fourth is the
measure or value to which the rate will be applied for
computing the tax liability. If those components are not
clearly and definitely ascertainable, it is difficult to say
that the levy exists in point of law. Any uncertainty or
vagueness in the legislative scheme defining any of
those components of the levy will be fatal to its
validity.”
19) The learned counsel reiterated that such an ambiguity in law is
now cured by amendment to Section 67 only w.e.f. May 14, 2015.
20) We have duly considered the aforesaid submissions made by the
learned counsel for the Department as well as the counsel for the
assessees. As can be seen, these submissions are noted in
respect of Civil Appeal No. 2013 of 2014 where the assessee is
providing ‘consulting engineering services’. In other appeals,
7 (1985) Suppl. SCC 205
Civil Appeal No. 2013 of 2014 with Ors. Page 30 of 44
though the nature of services is somewhat different, it doesn’t
alter the colour of legal issue, in any manner. In the course of
providing those services, the assessees had incurred certain
expenses which were reimbursed by the service recepient.
These expenses were not included for the purpose of valuation,
while paying the service tax. Thus, the question for determination
which is posed in Civil Appeal No. 2013 of 2014, answer to that
would govern the outcome of the other appeals as well. Still, for
the sake of completeness, we may give a brief resume of all
these cases.
“A. “Consulting Engineering Services” – Assessee were providing
consulting services to M/s. NHAI for highway projects. They
were paying Service Tax on remuneration only instead of the
gross value charged from the client.
Sl. No. Civil Appeal
details
Facts Reimbursable claimed
as not includible
1. 2013/2014
UOI v.
Intercontinental
Consultants
Period: Oct’2002 –
March’ 2007 (prior to
coming into effect of
impugned Rule 5 on
01.06.2007]
Demand:Rs.3,55,80,38/-
Assessee filed W.P. No.
6370/2008 directly
against Show Cause
Notice dated 17.03.2008
resulting in the
impugned judgment
Transportation, office
rent, office supplies
and utilities, testing
charges, document
printing charges,
travelling, lodging,
boarding etc. (post
19.04.2006)
Transportation, office
rent, office supplies,
office furniture and
equipment, reports
and documents
Civil Appeal No. 2013 of 2014 with Ors. Page 31 of 44
dated 30.11.2012 printing charges etc.
[Pre 19.04.2006].
[page 62-64]
2 6090/2017
CST v.
Intercontinental
Consultants
Period: 2007-2008 [post
coming into effect of
impugned Rule 5 on
01.06.2007]
Demand: Rs.
1,50,62,017/-
Show Cause Notice
dated 24.10.2008 was
issued on the basis of
the earlier SCN dated
17.03.2008 for the
subsequent period.
O-I-O dated 02.03.2010
covered both SCNs
dated 17.03.2008 &
24.10.2008.
Transportation, office
rent, office supplies &
utilities, testing
charges, document
printing charges,
travelling, lodging,
boarding etc. [page
157]
B. Share Transfer Agency Service:
Sl.
No.
Civil Appeal
details
Facts Reimbursable
claimed as not
includible
1 6866/2014
CST v. Through
its Secretary
Period: 01.04.2008-
31.03.2010
Demand:Rs.13,83,479
Reimbursement of
Expenses, out of
pocket expenses,
Postage expenses,
stationery charges
2. 3360/2015
CST v. Pinnacle
Share Registry
Pvt. Ltd.
Period: 01.05.2006-
31.03.2008
Demand: Rs. 13,83,479
Reimbursement of
Expenses, out of
pocket expenses,
Postage expenses
C. Custom House Agent covered by head “Clearing and
Forwarding Agent” prior to 18.04.2006. Procedure of raising two
Civil Appeal No. 2013 of 2014 with Ors. Page 32 of 44
sets of invoices for reimbursement of various expenses and for
service/agency charged separately started after introduction of
Service Tax on CHA’s (wef 15.06.1997) in view of Circular dated
06.09.1997.
Invoice issued for services/agency charges alone is used
for payment of Service Tax.
Sl.
No.
Civil Appeal
details
Facts Reimbursable claimed
as not includible
1. 295-299/2014
CST v. Asshita
International
Period: 01.10.2003-
31.03.2008 ([pre and
post coming into effect
of the impugned Rule 5]
Demand: 4,66,607/-
SCN dated 21.04.2009.
O-I-A dated 30.11.2010
[pages 238-259] set
aside demand prior to
18.04.2006 in view of
circular dated
06.06.1997.
Customs Examination
Chages, Misc.
Expenses, Sundry
expenses, strapping
and re-strapping
charges,
documentation
charges.
2. 2021/2014
CST v. Sunder
Balan
Period: Apr.08 to Aug’08
[post coming into effect
of impugned rule 5 on
01.06.2007]
Demand:Rs.2,26,659/-
SCN dated 24.07.2009.
Customs Examination
Charges, Misc.
Expenses, Sundry
expenses, strapping
and re-strapping
charges,
documentation
charges.
3. 4340-4341/2014
CST v. Suraj
Forwarders
Period: 01.04.2004 to
31.03.2008
Demand: Rs. 6,35,071/-
as confirmed in the O-IO.
The
Commissioner(Appeals)
set aside the demand
on the reimbursable
Customs Examination
Charges, Misc.
Expenses, Sundry
expenses, strapping
and re-strapping
charges,
documentation
charges.
Civil Appeal No. 2013 of 2014 with Ors. Page 33 of 44
expenses received
under the category
“Clearing & Forwarding
Agent” Service relation
to 1.04.2004-
17.04.2006 and
confirmed the remaining
demand.
4. 8056/2015
CST v. Suraj
Forwarders
Not Available
5. T.P.(C) No.
10431045/2017
UOI v. Sri
Chidambaram &
Ors.
A Transfer Petition for
transferring W.P. Nos.
20832, 14521 and
20590 of 2016 pending
before Hon’ble High
Court at Madras.
SCNs raised demands
for Rs. 37.13 lacs and
Rs. 53.30 lacs which
were dropped by the OI-O.
However on
appeals the O-I-O was
set aside, hence W.P’s
were filed.
CFS charges, steamer
agent charges,
delivery order charges,
Airport/Customs
charges [page 25-
26/para C]
Airline/steamer
charges, storage and
handling charges,
packing charges,
transport charges,
fumigation charges,
insurance survey
charges, original
certificate charges
[pages 62-62]
Charges paid to:
Steamer agent,
Custom Freight
Station, Airport
Authority of India and
Transporters [page
106-107]
6. 7688/2014
CST v. Shree
Gayatri Clearing
Agency
Period: 01.10.2003 to
31.03.2008
[pre and post coming
into effect of impugned
Rule 5 on 01.06.2007]
Demand: Rs. 9,65,652/-
SCN issued on
21.04.2009. O-I-A dated
Customs Examination
Charges, Misc.
Expenses, Sundry
expenses, strapping
and re-strapping
charges,
documentation
charges.
Civil Appeal No. 2013 of 2014 with Ors. Page 34 of 44
31.07.2013 set aside
demand for the period
18.04.2006-31.03.2008
in view of circular dated
06.06.1997.
7. 7685/2014
Comm. of
Customs v.
Ramdas Pragji
Forwarders Pvt.
Ltd.
Period:2004-05 & 2007-
08
The Adjudicating
Authority held that no
Service Tax was
payable on
reimbursable amount
prior to 18.04.2006. the
Circular dated
06.06.1997 lost its
validity after
introduction of Rule 5.
Hence the ST was
recoverable thereafter.
CMC charges,
CONCOR, GSEC,
Transportation
charges, Air and sea
freight, Custom Duty,
Custom Cess,
fumigation charges,
bottom paper, wooden
etc. handling charges,
labour expenses,
sundry charges, airport
charges,
documentation
charges, photocopying
charges etc. [page
181-182]
8. T.P.(C) 1932-
1934/2017
CST v. Green
Channel Cargo
Care
Period: April 2006-
March 2009
Harbour/Airport
Authority of
India/CFS/CCTL and
delivery order charges,
harbour dues, seal
verification,
warehouse/godown
charges.
D. Site Formation and clearance, excavation and earth moving
and demolition services: Assessees conduct drilling, blasting,
excavation, loading, transport etc. of overburdened at open cast
Mines. Issue is whether value of Goods/material service u/s.
65(97a), is to be included in ‘Gross Amount’ u/s 67 of Finance Act
for the purpose of S.T.
The impugned orders follow the decisions in Bhayana Builder
Civil Appeal No. 2013 of 2014 with Ors. Page 35 of 44
Intercontinental.
Sl.No. Civil Appeal
details
Facts Reimbursable claimed
as not includible
1. 6864/2014
CCE & ST v.
S.V. Engineering
Period: 01.02.2005-
31.03.2009
Demand: Rs.
74,14,396/- and Rs.
12,26,38,376/-
Value of Diesel and
explosives supplied
free of cost by service
recipient.
2. 6865/2014
CCE & ST v.
S.V. Engineering
Period: 01.04.2009-
31.03.2010
Demand: Rs.
87,63,595/-
Value of Diesel and
explosives supplied
free of cost by service
recipient.
3. 4356-4537/2016
CCE&ST v. S.V.
Engineering
Value of diesel oil and
explosives supplied
free of cost by service
recipient.
4. 5130/2016
CCE & ST v.
Sushree Infra
Demand of Rs.
18,85,88,959/- relating
to period 01.06.2008 to
31.03.2012
SCN dated 01.10.2012
confirmed by O-I-O
dated 04.05.2011
Value of explosives and
diesel oil supplied free
of cost by service
recipient.
5. 4975/2016
CCE & ST v.
Gulf Oil
Period: October 2008 to
November 2008
Demand: Rs.
50,54,746/-
Value of explosives and
diesel oil supplied free
of cost by service
recipient.
6. 5453/2016
CCE & ST v.
Period: Mar’08 to Mar’
2012
Value of explosives and
diesel oil supplied free
of cost
Civil Appeal No. 2013 of 2014 with Ors. Page 36 of 44
AMR India Demand:
Rs.57,74,30,683/-
7. 10223-
10224/2017
CCE & ST v.
Mehrotra
Buildcon
Period: Apr’09 to Jan’10
& February 2010 to
September 2010
Demand:Rs.21,48,835/-
+ Rs. 18,06,655/-
Value of diesel oil
supplied free of cost
8.
5444/2017
CCE & ST v.
Mehrotra
Buildcon
Not available Value of diesel oil
supplied free of cost
E.
Sl.
No.
Civil Appeal
details
Facts Reimbursable claimed
as not includible
1. 10626-
10627/2017
Period:Apr’04 to Mar’06
[prior to coming into
effect of impugned Rule
5 on 01.06.2007]
Demand:Rs.24,70,790/-
SCN dated 22.10.2008
Non-payment of Service
Tax on the amount
received as
reimbursement by way
of debit notes in
addition to amount
charged through
invoices for providing
‘Event Management
Service’, Section 65(40)
and Section 65(90)(zu)
[page 83]
Hiring of venue,
merchandise, artists,
travel, courier, food and
beverages,
administrative
expenses, [page 76
@78]
21) Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep
the expenses which are incurred while rendering the service and
Civil Appeal No. 2013 of 2014 with Ors. Page 37 of 44
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
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
Civil Appeal No. 2013 of 2014 with Ors. Page 38 of 44
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 Section 67 (unamended, i.e., prior to May 01, 2006) or after its
amendment, with effect from, May 01, 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 01, 2006. Sub-section (4) of Section
Civil Appeal No. 2013 of 2014 with Ors. Page 39 of 44
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 subsection
(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 byelaw,
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. 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:
Civil Appeal No. 2013 of 2014 with Ors. Page 40 of 44
‘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 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
Civil Appeal No. 2013 of 2014 with Ors. Page 41 of 44
Commissioner of Income Tax (Central)-I, New Delhi v. Vatika
Township Private Limited8
 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 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
8 (2015) 1 SCC 1
Civil Appeal No. 2013 of 2014 with Ors. Page 42 of 44
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.
CIVIL APPEAL NO. 6865 OF 2014, CIVIL APPEAL NO. 6864 OF
2014, CIVIL APPEAL NO. 4975 OF 2016, CIVIL APPEAL NO. 5130
OF 2016 AND CIVIL APPEAL NOS. 4536-4537 OF 2016
31) In the aforesaid appeals, the issue is as to whether the value of
free supplies of diesel and explosives in respect of the service of
‘Site Formation and Clearance Service’ can be included for the
purpose of assessment to service tax under Section 67 of the Act.
These assessees had not availed the benefit of aforesaid
Notifications Nos. 15/2004 and 4/2005. Therefore, the issue has
to be adjudged simply by referring to Section 67 of the Act. We
have already held above 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
Civil Appeal No. 2013 of 2014 with Ors. Page 43 of 44
explosives would not warrant inclusion while arriving at the gross
amount charged on its service tax is to be paid. Therefore, all
these appeals are also dismissed.
TRANSFER PETITION (CIVIL) NOS. 1043-1045 OF 2017
TRANSFER PETITION (CIVIL) NOS. 1932-1934 OF 2017
32) These transfer petitions are allowed and the writ petitions
mentioned in the prayer clause, which are pending before the
High Court of Madras, are transferred to this Court.
33) The transferred writs are also disposed of in terms of the
judgment rendered above in Civil Appeal No. 2013 of 2014 and
other connected matters.
.............................................J.
(A.K. SIKRI)
.............................................J.
(ASHOK BHUSHAN)
NEW DELHI;
MARCH 07, 2018.
Civil Appeal No. 2013 of 2014 with Ors. Page 44 of 44