Delhi High Court
Duttmenon Dunmorrsett vs Union Of India & Ors. on 16 July, 2018
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 16.07.2018
+ W.P.(C) 4740/2017
DUTTMENON DUNMORRSETT ..... Petitioner
Through: Mr. Tushar Jarwal, Adv. with Mr. Rahul
Sateeja, Adv.
Ms. Priyadarshi Manish, Ms. Anjali J. Manish,
Ms. Nidhi Saini, Advs.
Versus
UNION OF INDIA & ORS. ..... Respondent
Through: Mr. Sanjeev Narula, SSC with Mr.
Abhishek Ghai, Adv.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE A. K. CHAWLA
S. RAVINDRA BHAT, J. (ORAL)
1. The petitioner has questioned a demand of `38,30,003/- made
by the learned Assistant Commissioner of Service Tax consequent
upon an adjudication, resulting in the order in original dated
31.03.2017. The petitioner, a law firm submits that the amounts paid
to senior counsel for services rendered to third party clients in the
form of representation in Courts etc., cannot be subjected to service
tax levy under the Finance Act, 1994, in its hands. In this case, the
impugned order, i.e. the order in original dated 31.03.2017 of the
learned Assistant Commissioner relied upon Rule 5 of the Service
Tax (Determination of Value) Rules, 2006 (hereafter referred to as
'the Rules') to hold that the reimbursement, by its clients to the
petitioner, had to be included in the value of services that was
subjected to levy.
2. The levy in this case was, for the first time, introduced on
01.09.2009 by insertion of Section 65(105)(zzzzm) of the Finance
Act, 1994 by way of substitution. The two show cause notices issued
to the petitioner cover the period from 01.09.2009 to 30.06.2012. The
petitioner relies upon a Division Bench ruling of this Court in
Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of
India 2013 (29) STR 9 (Del.). In this judgment, the Court had
declared that Rule 5(1) of the Rules to the extent it mandates
inclusion of reimbursements to the assessee, in respect of payments
made to third parties cannot be subjected to service tax levy. The
judgment was later affirmed by the Supreme Court in Union of India
v. Intercontinental Consultants Pvt. Ltd. (2018) 4 SCC 669 (CA
2013/2014 and connected cases). This Court had in its judgment in
Intercontinental Consultants & Technocrats Pvt. Ltd. (supra), held as
follows:
"18. Section 66 levies service tax at a particular rate on the
value of taxable services. Section 67(1) makes the
provisions of the section subject to the provisions of
Chapter V, which includes Section 66. This is a clear
mandate that the value of taxable services for charging
service tax has to be in consonance with Section 66 which
levies a tax only on the taxable service and nothing else.
There is thus inbuilt mechanism to ensure that only the
taxable service shall be evaluated under the provisions of
67. Clause (i) of sub-section (1) of Section 67 provides that
the value of the taxable service shall be the gross amount
charged by the service provider "for such service". Reading
Section 66 and Section 67(1)(i) together and harmoniously,
it seems clear to us that in the valuation of the taxable
service, nothing more and nothing less than the
consideration paid as quid pro quo for the service can be
brought to charge. Sub-section (4) of Section 67 which
enables the determination of the value of the taxable service
"in such manner as may be prescribed" is expressly made
subject to the provisions of sub-section (1). The thread
which runs through Sections 66, 67 and Section 94, which
empowers the Central Government to make rules for
carrying out the provisions of Chapter V of the Act is
manifest, in the sense that only the service actually
provided by the service provider can be valued and
assessed to service tax. We are, therefore, undoubtedly of
the opinion that Rule 5(1) of the Rules runs counter and is
repugnant to Sections 66 and 67 of the Act and to that
extent it is ultra vires. It purports to tax not what is due
from the service provider under the charging Section, but it
seeks to extract something more from him by including in
the valuation of the taxable service the other expenditure
and costs which are incurred by the service provider "in the
course of providing taxable service". What is brought to
charge under the relevant Sections is only the consideration
for the taxable service. By including the expenditure and
costs, Rule 5(1) goes far beyond the charging provisions
and cannot be upheld. It is no answer to say that under sub-
section (4) of Section 94 of the Act, every rule framed by the
Central Government shall be laid before each House of
Parliament and that the House has the power to modify
the rule. As pointed out by the Supreme Court in Hukam
Chand v. Union of India, AIR 1972 SC 2427 :-
"The fact that the rules framed under the Act have to
be laid before each House of Parliament would not
confer validity on a rule if it is made not in
conformity with Section 40 of the Act."
Thus Section 94(4) does not add any greater force to the
Rules than what they ordinarily have as species of
subordinate legislation.
19. For the above reasons we quash the impugned show-
cause notice and allow the writ petition with no order as to
costs."
3. These findings were affirmed by the Supreme Court, in the
following terms:
"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.
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.
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."
4. In view of these developments, this Court is of the opinion that
the Revenue could not have included the payments received as
reimbursements, payments made by the assessee/petitioner or received
through reimbursements towards Senior Counsel fee, in the value of
services rendered by it. Consequently, the impugned order in original
dated 31.03.2017 is hereby quashed. The Assessing Officer is hereby
directed to initiate fresh proceedings for assessment during the
relevant period in respect of any other claims that may be
maintainable in law. All rights and contentions of the parties are
hereby reserved.
The writ petition is allowed in the above terms.
S. RAVINDRA BHAT, J
A. K. CHAWLA, J
JULY 16, 2018
akv
