[2018] 91 taxmann.

com 67 (SC)/[2018] 51 GSTR 385 (SC)/[2018] 10 GSTL 401

(SC)/[2018] 66 GST 450 (SC)[07-03-2018]

GST/Service tax: Service tax is to be paid only on services actually provided by

service provider and not on reimbursement of expenses

■■■

[2018] 91 taxmann.com 67 (SC)

SUPREME COURT OF INDIA
Union of India
v.
Intercontinental Consultants & Technocrats (p.) Ltd.*
A. K. SIKRI AND ASHOK BHUSHAN, JJ.
CIVIL APPEAL NOS. 2013 OF 2014 AND OTHERS†
MARCH 7, 2018

Section 15 of the Central Goods And Services Tax Act, 2017/Section 67 of the Finance Act,
1994, read with rule 5 of the Service Tax (Determination of Value) Rules, 2006 - Supply - Value
of - Assessee-company was providing consulting engineering services but did not pay
service tax on reimbursements towards expenses incurred by it such as air travel, hotel stay,
etc. - Department sought inclusion thereof in value under rule 5(1) - Whether, it is value of
services which are actually rendered, value whereof is to be ascertained for purpose of
calculating service tax payable thereupon - Held, yes - Whether any other amount which is
calculated not for providing such taxable service cannot form a part of that valuation as that
amount is not calculated for providing such 'taxable service' - Held, yes - Whether thus,
service tax is to be paid only on services actually provided by service provider and not on
reimbursement of expenses - Held, yes [Paras 24 & 25] [In favour of assessee]
Circulars and Notifications : Circular/Instructions F. No. B - 43/5/97-TRU, dated 6-61997
FACTS

■ The assessee-company was providing consulting engineering services. It specialised in highways,

structures, airports, urban and rural infrastructural projects and was engaged in various road projects
outside and inside India.
■ During the course of the carrying on of its business, the assessee rendered consultancy services in respect
of highway projects to the National Highway Authority of India (NHAI). The assessee received payments
not only for its service but was also reimbursed towards expenses incurred by it towards air travel, hotel
stay, etc.
■ The assessee paid service tax in respect of amounts received by it for services rendered to its clients;
however, it did not pay any service tax in respect of the expenses incurred by it, which was reimbursed by
the clients.
■ The revenue demanded service tax on gross value including reimbursable and out of pocket expenses like
travelling, lodging and boarding etc. in view of rule 5(1) of the Service Tax (Determination of Value)
Rules, 2006.
■ The assessee preferred writ petition challenging the vires of rule 5 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;
(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 17-3-2008 holding that it is
illegal, arbitrary, without jurisdiction and unconstitutional.
■ 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.
■ On appeal to the Supreme Court:
HELD

■ Undoubtedly, rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while
rendering the service and 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 permits the subordinate legislation to be enacted in
the said manner, as done by rule 5. As noted, prior to 19-4-2006, i.e., in the absence of any such rule, the
valuation was to be done as per the provisions of section 67. [Para 21]
■ Section 66 is the charging section which 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 at the rate of 12 per cent 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 thereupon. [Para 23]
■ In this hue, the expression such occurring in section 67 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 form part of that valuation as that amount is not calculated for providing such
'taxable service'. That is the plain meaning which is to be attached to section 67 (unamended, i.e., prior to
1-5-2006) or after its amendment, with effect from 1-5-2006. 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. Therefore, the 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 quo for rendering such a service. [Para 24]
■ This position did not change even in the amended section 67 which was inserted on 1-5-2006. Sub-section
(4) of section 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 sub-
section (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. [Para 25]
■ It is trite that rules cannot go beyond the statute. A rule which comes in conflict with the main enactment
has to give way to the provisions of the Act. It is also well established principle that rules are framed for
achieving the purpose behind the provisions of the Act. [Paras 26 to 28]
■ In the instant 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 14-5-
 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 14-5-2015, 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 department that section 67 is a declaratory
provision, nor could it be argued so, as this is a substantive change brought about with the amendment to
section 67 and, therefore, has to be prospective in nature. [Para 29]
■ As a result, there is no merit in any of the appeals which are accordingly dismissed. [Para 30]
CASE REVIEW

Intercontinental Consultants & Technorats (P.) Ltd. v. Union of India [2012] 28 taxmann.com 213 (Delhi)
(para 30) affirmed.
CASES REFERRED TO

Jain Brother v. Union of India [1970] 77 ITR 107 (SC) (para 10), Central Bank of India v. Workmen AIR 1960
SC 12 (para 10), Babaji Kondaji Garad v. Nasik Merchants Co-operative Bank Ltd. [1984] 2 SCC 50 (para
10), State of UP v. Babu Ram Upadhya AIR 1961 SC 751 (para 10), CIT v. S. Chenniappa Mudaliar [1969] 74
ITR 41 (SC) (para 10), Bimal Chandra Banerjee v. State of M.P. [1971] 81 ITR 105 (SC) (para 10), CIT v. Taj
Mahal Hotel [1971] 82 ITR 44 (SC) (para 10), Commissioner of Customs &Excise v. Cure & Deelay Ltd.
[1961] 3 WLR 788 (QB) (para 10), Union of India v. Bengal Shrachi Housing Development [2018]1 SCC 311
(para 13), Union of India v. Bombay Tyre International Ltd. [1983] taxmann. com 547 (SC) (para 14),
Mathuram Agrawal v. State of M.P. [1999] 8 SCC 667 (para 18), Govind Saran Gagan Saran v. CST AIR
1985 SC 1041 (para 18) and CIT v. Vatika Township (P.) Ltd. [2015] 1 SCC 1 (para 29).
K. Radhakrishanan, Sr. Adv., Ms. Nisha Bagchi, B. Sunita Rao, Ms. Shirin Khajuria, Rajiv Nanda,
Rupesh Kumar, Advs., and B. Krishna Prasad, AOR for the Appellant. J.K. Mittal, Sanjay Grover, A.
Lakshmi Narayanan, Advs., K.V. Mohan, Praveen Swarup, Pramod B. Agarwala, R. Parthasarathy,
Rajiv Shankar Dvivedi, Aravindh S. and Mahinder Jit Singh, AOR's for the Respondent.
JUDGMENT

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 differences 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 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 necessitates examining the the
correctness of the judgment of the Delhi High Court and outcome 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 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 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 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 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 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 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;
(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
(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
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 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 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 Brother v.
Union of India [1970] 77 ITR 107 (SC). 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 enactment Central
Bank of India v. Workman AIR 1960 SC 12; Babaji Kondaji Garad v. Nasik Merchants Co – Operative Bank
Ltd. [1984] 2 SCC 50; State of UP v. Babu Ram Upadhya AIR 1961 SC 751; CIT v. S. Chenniappa Mudaliar
[1969] 74 ITR 41 (SC); Bimal Chandra Banerjee v. State of M.P. [1971] 81 ITR 105 (SC) and CIT v. Taj
Mahal Hotal [1971] 82 ITR 44 (SC). The High Court also referred to the judgment of Queens Bench of
England in the case of Commissioner of Custom & Excise v. Cure & Deelay Ltd. [1961] 3 WLR 788 (QB).
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 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 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 sub-rule (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 v. Bengal Shrachi Housing Development Ltd.
[2018] 1 SCC 311 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 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 v. Bombay Tyre International Ltd. [1983] taxmann. com 547 (SC):
'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 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 post-
manufacturing 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 post-manufacturing 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.
** ** **

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 post-manufacturing expenses and post-
manufacturing profit from the price for the purpose of determining the "value".
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 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-in-Council 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 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
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] .
** ** **

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.
** ** **

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 post-manufacturing 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
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 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 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 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. Taxable Services Sub-clause of 65 Date of Tax

No. (105) levy Rate
1 Consulting Engineer Service (g) 7-7-1997
2 Rent-a-Cab services by a person engage in business of renting of (o) 16-7-1997 *
cabs
3 Transport of Passenger by Air by an aircraft operator (zzzo) **
(a) International 1-5-2006
(b) Domestic 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 (b), (zzzx) 1-7-1994,
Authority 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 M.P. [1999] 8 SCC 667 wherein this Court held:
"12. ... The statute should clearly and unambiguously 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 Gagan
Saran v. CST AIR 1985 SC 1041:
"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, 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. Civil Appeal Facts Reimbursable claimed as not includible

No. details
1. 2013/2014 UOI Period: Oct'2002 – March' 2007 (prior to Transportation, office rent, office supplies
v. coming into effect of impugned Rule 5 and utilities, testing charges, document
Intercontinental on 01.06.2007] printing charges, travelling, lodging,
Consultants Demand:Rs.3,55,80,38/- boarding etc. (post 19.04.2006)
Assessee filed W.P. No. 6370/2008 Transportation, office rent, office supplies,
directly against Show Cause Notice office furniture and equipment, reports and
dated 17.03.2008 resulting in the documents printing charges etc. [Pre
impugned judgment dated 30.11.2012 19.04.2006]. [page 62-64]
 2 6090/2017 CST Period: 2007-2008 [post coming into Transportation, office rent, office supplies
v. effect of impugned Rule 5 on & utilities, testing charges, document
Intercontinental 01.06.2007] printing charges, travelling, lodging,
Consultants Demand: Rs. 1,50,62,017/- boarding etc. [page 157]
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.

B. Share Transfer Agency Service:

Sl. Civil Appeal details Facts Reimbursable claimed as not includible
No.
1 6866/2014 CST v. Through Period: 01.04.2008- Reimbursement of Expenses, out of pocket
its Secretary 31.03.2010 expenses, Postage expenses, stationery charges
Demand:Rs.13,83,479
2. 3360/2015 CST v. Pinnacle Period: 01.05.2006- Reimbursement of Expenses, out of pocket
Share Registry Pvt. Ltd. 31.03.2008 expenses, Postage expenses
Demand: Rs.
13,83,479

C. Custom House Agent covered by head "Clearing and Forwarding Agent" prior to 18.04.2006. Procedure of
raising two 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 Facts Reimbursable claimed as not includible
details
1. 295-299/2014 Period: 01.10.2003-31.03.2008 ([pre Customs Examination Chages, Misc.
CST v. Asshita and post coming into effect of the Expenses, Sundry expenses, strapping
International impugned Rule 5] and re-strapping charges, documentation
Demand: 4,66,607/- charges.
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.
2. 2021/2014 Period: Apr.08 to Aug'08 [post coming Customs Examination Charges, Misc.
CST v. Sunder into effect of impugned rule 5 on Expenses, Sundry expenses, strapping
Balan 01.06.2007] and re-strapping charges, documentation
Demand:Rs.2,26,659/- charges.
SCN dated 24.07.2009.
3. 4340- Period: 01.04.2004 to 31.03.2008 Customs Examination Charges, Misc.
4341/2014 CST Demand: Rs. 6,35,071/-as confirmed Expenses, Sundry expenses, strapping
v. Suraj in the O-I-O. The and re-strapping charges, documentation
Forwarders charges.
Commissioner(Appeals) set aside the
demand on the reimbursable 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 Not Available
CST v. Suraj
Forwarders
5. T.P.(C) No. A Transfer Petition for transferring CFS charges, steamer agent charges,
10431045/2017 W.P. Nos. 20832, 14521 and 20590 of delivery order charges, Airport/Customs
UOI v. Sri 2016 pending before Hon'ble High charges [page 25-26/para C]
Chidambaram Court at Madras. Airline/steamer charges, storage and
& Ors. SCNs raised demands for Rs. 37.13 handling charges, packing charges,
lacs and Rs. 53.30 lacs which were transport charges, fumigation charges,
dropped by the O-I-O. However on insurance survey charges, original
appeals the O-I-O was set aside, hence certificate charges [pages 62-62]
W.P's were filed. Charges paid to: Steamer agent, Custom
Freight Station, Airport Authority of
India and Transporters [page 106-107]
6. 7688/2014 CST Period: 01.10.2003 to 31.03.2008 Customs Examination Charges, Misc.
v. Shree [pre and post coming into effect of Expenses, Sundry expenses, strapping
Gayatri impugned Rule 5 on 01.06.2007] and re-strapping charges, documentation
Clearing charges.
Agency Demand: Rs. 9,65,652/-
SCN issued on 21.04.2009. O-I-A
dated 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 Period:2004-05 & 2007-08 CMC charges, CONCOR, GSEC,
Comm. of The Adjudicating Authority held that Transportation charges, Air and sea
Customs v. no Service Tax was payable on freight, Custom Duty, Custom Cess,
Ramdas Pragji reimbursable amount prior to fumigation charges, bottom paper,
Forwarders 18.04.2006. the Circular dated wooden etc. handling charges, labour
Pvt. Ltd. 06.06.1997 lost its validity after expenses, sundry charges, airport
introduction of Rule 5. Hence the ST charges, documentation charges,
was recoverable thereafter. photocopying charges etc. [page 181-
182]
8. T.P.(C) 1932- Period: April 2006-March 2009 Harbour/Airport Authority of
1934/2017 India/CFS/CCTL and delivery order
CST v. Green charges, harbour dues, seal verification,
Channel Cargo warehouse/godown charges.
Care

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 Intercontinental.
Sl. No. Civil Appeal details Facts Reimbursable claimed as not
includible
1. 6864/2014 CCE & ST v. Period: 01.02.2005-31.03.2009 Value of Diesel and explosives
S.V. Engineering Demand: Rs. 74,14,396/- and Rs. supplied free of cost by service
12,26,38,376/- recipient.

2. 6865/2014 CCE & ST v. Period: 01.04.2009-31.03.2010 Value of Diesel and explosives

 S.V. Engineering Demand: Rs. 87,63,595/- supplied free of cost by service
recipient.
3. 4356-4537/2016 Value of diesel oil and explosives
CCE&ST v. S.V. supplied free of cost by service
Engineering recipient.
4. 5130/2016 CCE & ST v. Demand of Rs. 18,85,88,959/- Value of explosives and diesel oil
Sushree Infra relating to period 01.06.2008 to supplied free of cost by service
31.03.2012 recipient.
SCN dated 01.10.2012 confirmed
by O-I-O dated 04.05.2011
5. 4975/2016 CCE & ST v. Period: October 2008 to November Value of explosives and diesel oil
Gulf Oil 2008 supplied free of cost by service
Demand: Rs. 50,54,746/- recipient.

6. 5453/2016 CCE & ST v. Period: Mar'08 to Mar' 2012 Value of explosives and diesel oil
AMR India Demand: Rs.57,74,30,683/- supplied free of cost
7. 10223-10224/2017 CCE Period: Apr'09 to Jan'10 & Value of diesel oil supplied free of
& ST v. Mehrotra February 2010 to September 2010 cost
Buildcon Demand:Rs.21,48,835/-+ Rs.
18,06,655/-
8. 5444/2017 CCE & ST v. Not available Value of diesel oil supplied free of
Mehrotra Buildcon cost

E.

Sl. No. Civil Facts Reimbursable claimed as

Appeal not includible
details
1. 10626- Period:Apr'04 to Mar'06 Hiring of venue,
10627/2017 [prior to coming into effect of impugned Rule 5 on merchandise, artists, travel,
courier, food and
01.06.2007]
beverages, administrative
Demand:Rs.24,70,790/- expenses, [page 76 @78]
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]

21. Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while
rendering the service and 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 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 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 sub
section (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 bye-law, 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:
'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 CIT v. Vatika Township (P.) Ltd.
[2015] 1 SCC 1 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 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 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.
JYOTI

*In favour of assessee.

†Arising out of order of High Court in Intercontinental Consultants & Technorats (P.) Ltd. v. Union of
India [2012] 28 taxmann.com 213 (Delhi).