Bhanwar Lal Gurjar vs. Commissioner Of CGST And Service Tax

Facts

The appellant, Bhanwar Lal Gurjar, filed an appeal against an order of the Customs Excise and Service Tax Appellate Tribunal (CESTAT). The CESTAT had confirmed a demand for service tax for the financial year 2011-12, including amounts related to Provident Fund (PF) and ESI contributions for labour provided to clients. The appellant argued that these were reimbursable expenses and should not be included in the assessable value for service tax, citing the Supreme Court's decision in Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. The revenue contended that Section 67 of the Finance Act, 1994, and Rule 5 of the Service Tax (Determination of Value) Rules, 2006, mandated the inclusion of such contributions. The CESTAT had partly allowed the appeal, setting aside the demand beyond the normal period of limitation but confirming the demand within the normal period.

Held

The Court held that the substantial question of law was answered by the Supreme Court's decision in Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. The Court found that Rule 5 of the Service Tax (Determination of Value) Rules, 2006, which provided for the inclusion of expenditure or costs incurred by the service provider in the course of providing taxable services as consideration, went beyond the mandate of Section 67 of the Finance Act, 1994. The Supreme Court had held that the valuation of taxable service could not be anything more or less than the consideration paid as quid pro quo for rendering such a service. The Court noted that Section 67 was amended prospectively in 2015 to include reimbursable expenditure. Therefore, for the period in question, the appellant was liable to be charged service tax only on the service rendered, and the valuation could not include reimbursable expenses like PF and ESI contributions. The judgment of the Kerala High Court relied upon by the revenue was distinguished as it dealt with a period prior to the amendment of Section 67. The appeal was allowed based on the Supreme Court's decision.

Key Issues

1. Whether the Tribunal was correct in law in confirming the demand for service tax on amounts paid towards Provident Fund (PF), ESI, and salaries to labour as reimbursements, which the appellant argued was contrary to Section 67 of the Finance Act, 1994, and the Supreme Court's judgment in Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. (2018 (10) G.S.T.L. 401 (S.C.)), thereby violating principles of natural justice by passing a non-speaking order. Contentions: Petitioner/Appellant: Argued that Rule 5 of the Service Tax (Determination of Value) Rules, 2006, was struck down by the Supreme Court, and therefore, reimbursable expenses could not be included in the assessable value. The amounts paid towards PF and ESI were deposited into labour accounts, and the appellant only received commission for providing manpower. Relied on Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. Respondent/Revenue: Contended that the amounts paid towards PF and ESI contributions were liable to be included in the gross amount for calculating service tax liability as per Section 67 of the Finance Act, 1994. Relied on Security Agencies Association Vs. Union of India & Others (W.A. No. 812/2012) of the Kerala High Court.