ST - Valuation Rules, 2006 were not for exempting any portion of value, which is otherwise taxable under Section 67 of FA, 1994: CESTAT
By TIOL News Service
NEW DELHI, NOV 23, 2017: THE appellants are engaged in providing advertising service to various clients.
The dispute in the present appeal relates to valuation of said service for service tax purposes. More particularly, the dispute is with reference to certain bill amounts shown as reimbursement charges of Gift Prices, Display Cost, Stall Sample, audio System, Permission for campaigning from State Government, Promotional Materials etc. incurred by the appellant and reimbursed by their clients on cost basis.
The claim of the appellant that these were reimbursed on actual basis and are to be excluded from taxable value in terms of Section 67 read with Notification No. 12/2003-ST dated 20.06.2003 was not accepted by the Revenue.
However, in adjudication, the original authority dropped the demand.
In Revenue appeal, the Commissioner (Appeals), in the impugned order, reversed the decision of the original authority holding that the concept of pure agent will not apply for the period prior to the introduction of Valuation Rules w.e.f. 19.04.2006. It was held that the original authority erred in allowing exclusion of such expenses from the taxable value.
The appellant assessee pleaded before the CESTAT that the exclusion is supported by actual documents of purchase and saleand contractual arrangements with the clients.
The A.R. supported the findings and submitted that the original authority should not have given the benefit of pure agent for the period prior to 19.04.2006, as the Rule itself came into force only on that day. [ Mckinsey & Co. = 2007-TIOL-583-CESTAT-MUM relied upon.]
After considering the submissions, the Bench held -
"5. …We find that valuation of taxable service in terms of Section 67 can be with reference to service, if there were purchase and sale of goods as evidenced by the documents, the same cannot form part of taxable value for service. This is even without reference to the concept of pure agent. It is not the case that the introduction of Valuation Rules has brought in specific exclusions, which were otherwise taxed under Section 67. In other words, the Valuation Rules were not for exempting any portion of value, which is otherwise taxable under Section 67. The basic concept of Section 67 remained the same all throughout. Prior to substitution of the Section on 01.05.2006 the main provision of valuation stated that "the value of any taxable service shall be the gross amount charged by the provider of service for such service rendered by him". The Valuation Rules brought in clarity to cover various situations and the same are notified on 19.04.2006.
6. Even otherwise, we note that the situation is covered by Notification No. 12/2003 dated 20.06.2003. … The original authority came to the conclusion that the appellant need to pay tax only with reference to service charges or the consideration received towards the services rendered by them. The exclusion of other reimbursable expenditure as evidenced by documents are not to be treated for tax purposes. View of the Revenue that the introduction of Rule will change this valuation concept is not accepted. Section 67 can bring the valuation of taxable service only with reference to service. In the evidence available in the present appeal that these were reimbursements, which are on actual basis in terms of agreement with the clients and are known to the parties, the same are not to be brought in for taxable purpose under Section 67."
Concluding that the analysis made in the order-in-original is correct and proper, the impugned order was set aside and the appeal was allowed.
(See 2017-TIOL-4115-CESTAT-DEL)
