ST - Rule 5(1) which provides for inclusion of expenditure is held to be ultra vires by Delhi HC to that extent only - S.67 provides for payment of ST on gross amount - in present case, service is supply of manpower and there are no such expenses like travel cost & hotel stay as in referred case - appeal dismissed: CESTAT
By TIOL News Service
MUMBAI, JAN 03, 2014: THE appellants undertook the activity of supply of manpower to various clients and service tax liability on the same is not disputed. However, the appellants were paying service tax on the gross amount received from their clients except in the case where the manpower is supplied to textile mills and Maharashtra State Secondary School of Certificate Board, Aurangabad (SSC Board) i.e. they are paying service tax only on the portion of the service charges retained by the appellants, i.e. without taking into consideration the labour wages and other amount received from the textile mills and SSC Board.
As the demand was confirmed by the lower authorities the appellant is before the CESTAT and submits that -
+ the appellants are liable to pay ST only on the service part and not in respect of wages etc. in view of the Delhi High Court decision in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. vs. UOI (2012-TIOL-966-HC-DEL-ST) wherein the provisions of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006were held to be ultra vires .
+ the demand is time barred as SCN was issued on 14/09/2011 whereas the facts were disclosed to the Revenue by the authorized representative in his statement recorded in the year 2007 and so also Audit was conducted and the objection was conveyed on 15/09/2008.
+ the demand is not rightly quantified as for the year 2009-10, the appellants had not provided any manpower to the textile mills and SSC Board.
The Revenue representative relied upon the findings of the lower authority and countered the submissions made by the appellant.
As regards the ground taken of limitation, the Bench observed -
"9.… In respect of the other private clients, the appellants are paying appropriate tax on the gross amount received. Only in respect of the service provided to SSC Board and textile mills, the appellants are discharging service tax on the service portion only. In these circumstances, we find no merit in the contention of the appellants that the allegation of suppression is not sustainable, particularly in view of the fact that the appellants were well aware of the fact that they are liable to discharge the liability of service tax on the gross amount and the appellants in some cases are doing so…."
In the matter of the reliance placed on the decision of the Delhi High Court, the Bench distinguished the same by observing thus -
"…In respect of the decision of the Hon'ble Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. (supra), the Hon'ble High Court held that Rule 5(1) of the Service Tax Rules, which provides inclusion of expenditure or cost incurred by the service provider in the course of providing taxable service in the value for the purpose of charging service tax is ultra vires to that extent only, as held in para 18 of the judgment. In the present case, we find that Section 67 of the Finance Act provides that the assessee is liable to pay service tax on the gross amount received in respect of the service provided. In the present case, the service is of supply of manpower. The case before the Hon'ble Delhi High Court was with reference to consulting engineer service and in that regard, the Hon'ble High Court held that the expenditure such as travel cost, hotel stay, transportation are not to be included in the gross amount for the purpose of taxable service. In the present case there are no such expenses. The appellants are receiving the gross amount in respect of the labour supplied to the service recipient hence in view of the provisions of Section 67 of the Finance Act, the appellants are liable to pay service tax on the gross amount received."
Regarding the issue of quantification, the CESTAT held -
"10. …, we find that in the written submission filed at the time of personal hearing before the adjudicating authority, the appellants only pleaded that the TDS and other deductions made by the textile mills are not to be taken into consideration while calculating the liability of service tax on the gross amount. We find that in respect of TDS, the appellants are entitled for refund or adjustment of that amount at the time of payment of income tax, therefore it cannot be said that it is not part of the gross amount received by the appellants…."
Holding that there was no merit in the appeal, the same was dismissed.
Probably, this is not the end of the story…
(See 2014-TIOL-18-CESTAT-MUM)
