Union Of India & Anr vs M/S. Intercontinental Consultants And Technocrats Pvt. Ltd

,,,,

A.K. SIKRI, J.",,,,

In all these appeals, legal issue that needs determination is almost identical, though there may be little variation on facts. This difference pertains to the",,,,

nature of services provided by the respondents/assessees who are all covered by the service tax. The fringe diferences in the nature of services,",,,,

however, nature of differences, however, has no impact on the final outcome.",,,,

2) All the assessees are paying service tax. The services which these assessees are rendering broadly fall in the following four 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 outocme thereof would determine the fate of all these appeals/transfer petitions.,,,,

4) This judgment was rendered by the High court in the writ petition filed by M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. out of which,,,,

Civil Appeal No. 2013 of 2014 arises. Therefore, for our purpose, it would suffice to advert to the facts of this appeal and take note of the reasons",,,,

which have prevailed with the High Court in arriving at this conclusion.,,,,

5) The assessee M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. is a provider of consulting engineering services. It specialises in,,,,

highways, structures, airports, urban and rural infrastructural projects and is engaged in various road projects outside and inside India. In the course of",,,,

the carrying on of its business, the petitioner rendered consultancy services in respect of highway projects to the National Highway Authority of India",,,,

(NHAI). The petitioner receives payments not only for its service but is also reimbursed expenses incurred by it such as air travel, hotel stay, etc. It",,,,

was paying service tax in respect of amounts received by it for services rendered to its clients. It was not paying any service tax in respect of the,,,,

expenses incurred by it, which 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 viresSections 66 and 67 of the Finance Act, 1994; and",,,,

(iii) for quashing the impugned show-cause notice-cum-demanddated 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 bythe 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), theexpenditure 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:Â",,,,

• 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;Â,,,,

• 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 â€" • 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;Â,,,,

• 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.â€​,,,,

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 chargesby 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 authorityfrom 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 agentfrom the airline;,,,,

(e) the commission, fee or any other sum received byan actuary, or intermediary or insurance intermediary or insurance agent from the insurer;",,,,

(f) the reimbursement received by the authorizedservice 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 railtravel agent from the Railways or the customer.,,,,

But does not include â€",,,,

(i) initial deposit made by the subscriber at the time ofapplication 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 consumablesuch 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 respectof service provided by him;,,,,

(v) the rail fare collected by rail travel agent in respectof service provided by him;,,,,

(vi) the cost of parts or other material, if any, sold tothe customer during the course of providing maintenance or repair service;",,,,

(vii) the cost of parts or other material, if any, sold tothe customer during the course of providing erection, commissioning or installation service; and",,,,

(viii) interest on loan.,,,,

Explanation 2 â€" 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.â€​",,,,

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 aconsideration 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 aconsideration 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 aconsideration which is not ascertainable, be the amount as ay be determined in the prescribed",,,,

manner.,,,,

(2) Where the gross amount charged by a serviceprovider, 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 serviceshall 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) “considerationâ€​ includes any amount that ispayable 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 bycheque, 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.â€​,,,,

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 Brothers v. Union of India (1970) 77 ITR 107. 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 & Ors. v. Workmen, etc.,",,,,

(1960) 1 SCR 200; Babaji Kondaji Garad v. Nasik Merchants Co-operative Bank Ltd., (1984) 2 SCC 50; State of U.P. & Ors. v. Babu Ram",,,,

Upadhya, (1961) 2 SCR 679; CIT v. S. Chenniappa Mudaliar, (1969) 74 ITR 41; Bimal Chandra Banerjee v. State of M.P. & Ors., (1971) 81 ITR",,,,

105 and CIT, Andhra Pradesh v. Taj Mahal Hotel, (1971) 82 ITR 44.The High Court also referred to the judgment of Queens Bench of England in the",,,,

case of Commissioner of Customs and Excise v. Cure and Deeley Ltd. (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 subrule (2) of Rule 5. Submission was that since",,,,

Section 67 specifically lays down the principle of gross amount charged by a service provider for the services provided or to be provided, Rule 5 did",,,,

not go contrary to Section 67 as it only mentions what would be the meaning of gross amount charged.,,,,

13) In the aid of this submission, the learned counsel sought to take help from principle laid down in excise law and submitted that it is held by this",,,,

Court in Union of India & Ors. v. Bengal Shrachi Housing Development Limited & Anr (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.,,,,

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.â€​,,,,

14) It was also submitted that while dealing with the valuation of a taxable service, the provision which deals with valuation has to be taken into",,,,

consideration and no assistance can be taken from charging section, as held in Union of India & Ors. v. Bombay Tyre International Limited & Ors",,,,

(1984) 1 SCC 467. :,,,,

“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 valueâ€, 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 exciseâ€, that is to say, that the price must exclude post-manufacturing expenses and post-",,,,

manufacturing profit and must not be loaded with any extraneous element. It is conceded, however, that under the new Section 4(1)(a) there is no",,,,

attempt to preserve uniformity as regards the amount of duty between one manufacturer and another, but it is urged that the basis on which the value",,,,

is determined is constituted by the same conceptual criterion, that postmanufacturing expenses and post-manufacturing profit must be excluded.",,,,

Considerable emphasis has been laid on the submission that as excise duty is a tax on the manufacture or production of goods it must be a tax,,,,

intimately linked with the manufacture or production of the excisable article and, therefore, it can be imposed only on the assessable value determined",,,,

with reference to the excisable article at the stage of completed manufacture and to no point beyond. To preserve this intimate link or nexus between,,,,

the nature of the tax and the assessment of the tax, it is urged that all extraneous elements included in the “value†in the nature of",,,,

postmanufacturing expenses and post-manufacturing profits have to be off-loaded. It is pointed out that factors such as volume, quantity and weight,",,,,

which enter into the measure of the tax, are intimately linked with the manufacturing activity, and that the power of Parliament under Entry 84 of List",,,,

I of the Seventh Schedule to the Constitution to legislate in respect of “value†is restricted by the conceptual need to link the basis for determining,,,,

the measure of the tax with the very nature of the tax.,,,,

 xxx xxx xxx,,,,

Besides this fundamental issue, there are other points of dispute, principally in respect of the connotation of the expression “related person†in",,,,

the new Section 4 as well as the nature of the deductions which can be claimed by the assessee as postmanufacturing expenses and post-,,,,

manufacturing profit from the price for the purpose of determining the “valueâ€​.,,,,

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.,,,,

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 Indiaâ€. 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;….â€​",,,,

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,â€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.â€​,,,,

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] .,,,,

 xxx xxx xxx,,,,

17. A contention was raised for some of the assessees, that the measure was to be found by reading Section 3 with Section 4, thus drawing the",,,,

ingredients of Section 3 into the exercise. We are unable to agree. We are concerned with Section 3(1), and we find nothing there which clothes the",,,,

provision with a dual character, a charging provision as well as a provision defining the measure of the charge.",,,,

 xxx xxx xxx,,,,

We have examined the principles of an excise levy and have considered the statutory construction of the Act, before and after its amendment, in",,,,

view of the three propositions formulated, on behalf of the assessees, as principles constituting the essential characteristics of a duty of excise. It is",,,,

apparent that the first proposition, that excise is a tax on the manufacture or production of goods, and not on anything else, is indisputable and is",,,,

supported by a catena of cases beginning with The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 [AIR 1939",,,,

FC 1, 6 : 1939 FCR 18] . As regards the second proposition. that uniformity of incidence is a basic characteristic of excise, we are inclined to think",,,,

that the accuracy of the proposition depends on the level at which the statute rests it. We shall discuss that presently. As to the third proposition, that",,,,

the exclusion of post-manufacturing expenses and post-manufacturing profit is necessarily involved in the first principle does not inevitably follow. The,,,,

exclusion of post-manufacturing expenses and postmanufacturing profits is a matter pertaining to the ascertainment of the “value†of the,,,,

excisable article, and not to the nature of the excise duty, and as we 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.â€​,,,,

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",,,,

Sl. No.,Taxable Services,"Subclause of 65

(105)",Date of levy,Tax Rate

1,Consulting Engineer Service,(g),7-7-1997,

2,"Rent-a-Cab services by a person

engage in business of renting of

cabs",(o),16-7-1997,*

3,"Transport of Passenger by Air

by an aircraft operator (a)

International (b) Domestic",(zzzo),"1-5-2006

1-7-2010",**

4,Renting of immovable property,(zzzz),1-7-2007,

5,Restaurant services,(zzzzy),1-5-2011,***

6,"Accommodation services by

Hotel",(zzzzw),1-5-2011,****

7,"T e l e p h o n e Services/

Telecommunication services by

Telegraph Authority","(b), (zzzx)","1-7-1994,

1-6-2007",

Sl. No.,Civil Appeal details,Facts,Reimbursable claimed as not includible,

1.,"295-299/2014 CST v.

Asshita Internationa","Period: 01.10.2003- 31.03.2008

([pre and post coming into effect

of the impugned Rule 5] Demand:

4,66,607/- SCN dated 21.04.2009.

O-I-A dated 30.11.2010 [pages

238-259] set aside demand prior to

18.04.2006 in view of circular

dated 06.06.1997.","Customs Examination Chages, Misc.

Expenses, Sundry expenses, strapping

and re-strapping charges, documentation

charges.",

2.,"2021/2014 CST v.

Sunder Balan","Period: Apr.08 to Aug’08

[post coming into effect of

impugned rule 5 on 01.06.2007]

Demand:Rs.2,26,659/- SCN dated

24.07.2009.","Customs Examination Charges, Misc.

Expenses, Sundry expenses, strapping

and re-strapping charges, documentation

charges.",

3.,"4340-4341/2014 CST

v. Suraj Forwarders","Period: 01.04.2004 to 31.03.2008

Demand: Rs. 6,35,071/- as

confirmed in the O-IO. The

Commissioner(Appeals) set aside

the demand on the reimbursable

expenses received under the

category “Clearing &

Forwarding Agent†Service

relation to 1.04.2004- 17.04.2006

and confirmed the remaining

demand.","Customs Examination Charges, Misc.

Expenses, Sundry expenses, strapping

and re-strapping charges, documentation

charges.",

4.,"8056/2015 CST v.

Suraj Forwarders",Not Available,,

Sl.No.,Civil Appeal details,Facts,"Reimbursable claimed as

not includible",

1.,"6864/2014 CCE & ST v.

S.V. Engineering","P e r i o d : 01.02.2005-

31.03.2009 Demand: Rs.

74,14,396/- and Rs.

12,26,38,376/-","Value of Diesel and

explosives supplied free of

cost by service recipient.",

2.,"6865/2014 CCE & ST v.

S.V. Engineering","P e r i o d : 01.04.2009-

31.03.2010 Demand: Rs.

87,63,595/","Value of Diesel and

explosives supplied free of

cost by service recipient.",

3.,"4356-4537/2016 CCE&ST

v. S.V. Engineering",,"Value of diesel oil and

explosives supplied free of

cost by service recipient.",

4.,"5130/2016 CCE & ST v.

Sushree Infra","D e m a n d of Rs.

18,85,88,959/- relating to

period 01.06.2008 to

31.03.2012 SCN dated

01.10.2012 confirmed by

O-I-O dated 04.05.2011","Value of explosives and

diesel oil supplied free of

cost by service recipient.",

5.,"4975/2016 CCE & ST v.

Gulf Oil","Period: October 2008 to

November 2008 Demand:

Rs. 50,54,746/-","Value of explosives and

diesel oil supplied free of

cost by service recipient.",

6.,"5453/2016 CCE & ST v.

AMR India","Period: Mar’08 to

Mar’ 2012 Demand:

Rs.57,74,30,683/-","Value of explosives and

diesel oil supplied free of

cost",

7.,"10223- 10224/2017 CCE

& ST v. Mehrotra

Buildcon","Period: Apr’09 to

Jan’10 & February

2010 to September 2010

Demand:Rs.21,48,835/- +

Rs. 18,06,655/-","Value of diesel oil

supplied free of cost",

8.,"5444/2017 CCE & ST v.

Mehrotra Buildcon",Not available,"Value of diesel oil

supplied free of cost",

1.,10626- 10627/2017,"Period:Apr’04 to

Mar’06 [prior to

coming into effect of

impugned Rule 5 on

01.06.2007]

Demand:Rs.24,70,790/-

SCN dated 22.10.2008

Non-payment of Service

Tax on the amount

received as

reimbursement by way of

debit notes in addition to

amount charged through

invoices for providing

‘Event Management

Service’, Section

65(40) and Section 65(90)

(zu) [page 83]","H ir in g of venue,

merchandise, artists,

travel, courier, food and

beverages, administrative

expenses, [page 76 @78]",

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.,,,,

The obvious basis of the principle against retrospectivity is the principle of “fairnessâ€, 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.â€​",,,,

30) As a result, we do not find any merit in any of those appeals which are accordingly dismissed.Â",,,,

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.Â,,,,

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.,,,,