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