The Apex Court affirmed the Delhi High Court ruling which opined that the scope of Rule 5 went beyond the purview of Section 67 of the Service Tax Law and hence impermissible.
The taxpayers were rendering services in the following four categories:
- Consulting engineering;
- Share transfer agency;
- Custom house agent covered by the head 'clearing and forwarding agent'; and
- Site formation and clearance, excavation and earth moving, and demolition.
While rendering the aforesaid services, the taxpayers also received reimbursements for certain activities undertaken by them which in their view should not have been included in the 'gross amount charged' for the levying of service tax. As per Rule 5, the value of these reimbursable activities should also have been included as part of the services provided.
In terms of the service tax legislation, the rules have been formulated for carrying out the provisions of the law which provides for levying, quantification and collection of service tax.
Section 67 categorically mentions that service tax should apply only on the gross amount charged for providing such a taxable service. Therefore, any amount which does not apply in relation to providing the taxable service cannot be brought within the tax net. Once this interpretation was given, it was clear that Rule 5 went far beyond the mandate of Section 67. It is established law that rules cannot go beyond the statute. The aforesaid view is further strengthened by the manner in which the legislature itself was enacted. On realising that Section 67 did not include reimbursable expenses, the legislature suitably amended the law to include reimbursable expenditure or cost incurred by the service provider 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, could such reimbursable expenditure or costs form part of the valuation of the taxable services for the purposes of charging service tax.
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