Summary
The Supreme Court upheld the exclusion of reimbursed expenditure from service-tax valuation under section 67 of the Finance Act, 1994 for the periods before its substantive amendment effective 14 May 2015. Rule 5 could not enlarge the statutory measure beyond consideration for the taxable service. The 2015 inclusion of reimbursable costs operated prospectively. Free diesel and explosives supplied by service recipients likewise were not consideration charged by the assessees. The Revenue appeals were dismissed, and the transferred writ petitions were disposed of on the same basis.
Issues
- Whether Rule 5 could include reimbursed expenditure beyond the valuation authorised by section 67.
- Whether the 2015 amendment including reimbursable costs applied retrospectively.
- Whether free diesel and explosives supplied by the recipient formed part of the gross amount charged.
Provisions considered
- Section 67 (versions before the 2015 amendment), Finance Act, 1994Both the earlier provision and the version effective 1 May 2006 limited valuation to consideration charged for the taxable service; the rule-making power remained subject to that limit. (¶¶ 8, 9, 24, 25, 29)
- Rule 5, Service Tax (Determination of Value) Rules, 2006Could not require inclusion of reimbursable expenditure beyond the parent statute for the periods in dispute. (¶¶ 7, 21, 24, 25, 26, 27, 28)
Held
- The words “for such service” in section 67 limited the gross amount to the consideration paid for rendering the taxable service. Other amounts not charged for that service could not be brought into valuation by Rule 5. This interpretation applied to the statutory versions both before and after the 2006 amendment, for the pre-2015 periods in dispute. (¶¶ 21, 22, 23, 24, 25)
- Section 67(4), authorising prescription of a valuation method, was expressly subject to subsections (1) to (3). Subordinate rules cannot override, enlarge or whittle down the parent enactment. The High Court was therefore correct in holding the disputed inclusion under Rule 5 beyond statutory authority. (¶¶ 9, 24, 25, 26, 27, 28)
- The Finance Act, 2015 amendment expressly including reimbursable expenditure or costs in consideration took effect on 14 May 2015. It introduced a substantive change, not a declaratory clarification, and operated prospectively. The presumption against retrospective imposition of obligations supported that conclusion. (¶¶ 16, 29)
- Free supplies of diesel and explosives by service recipients for site-formation and clearance services were not amounts charged by the assessees and were not consideration for the services. Their value was excluded under section 67; the specified assessees had not availed the cited abatement notifications, so that issue was determined directly under the section. (¶ 31)
- The differences among consulting engineering, share-transfer, customs-house and other services did not change the statutory valuation issue concerning the reimbursements in these cases. The ruling addressed the relevant service-tax regime and did not establish a tax exemption under a different levy. (¶¶ 1, 2, 3, 20, 24, 29)
Result
Revenue appeals dismissed. Transfer petitions allowed to bring the specified Madras High Court writ petitions before the Supreme Court; transferred writs disposed of consistently with the judgment.