CESTAT Sets Aside ₹3.69 Crore Service-Tax Demand Against N Tech Diesel, Excluding Reimbursed Tower Diesel From Taxable Value

N Tech Diesel provided services relating to the operation, maintenance or repair of DG sets at mobile-tower sites, including procuring and filling diesel.

The diesel was procured as agent for the telecom companies; supplier invoices were issued in the companies’ names, and N Tech Diesel claimed reimbursement of the diesel cost.

The Department sought service tax on the reimbursed diesel cost under Section 73(1) of the Finance Act, 1994, alleging short payment of ₹9,98,59,049. The Commissioner confirmed ₹3,69,54,819, dropped the balance and imposed a penalty of ₹36,00,000.

Both N Tech Diesel and the Revenue appealed.

Section 67 of the Finance Act, 1994 measures service tax by the gross amount charged for the taxable service; an amount must be consideration for, and have a nexus with, the service provided to form part of that value.

In Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., the Supreme Court held that Rule 5 cannot enlarge Section 67 by including amounts that are not consideration for the taxable service; the judgment also notes that the Delhi High Court’s ruling invalidating Rule 5(1) was affirmed by the Supreme Court.

Relying also on Bhayana Builders, the Tribunal stated that the value of goods supplied free by a service recipient is neither an amount charged by the service provider nor consideration for the service.

The Tribunal also relied on its coordinate-bench decision in Adept v. Principal Commissioner of CGST & Central Excise, Lucknow concerning diesel reimbursement in a similar factual setting.

The Tribunal found that the diesel belonged to the telecom companies: it was procured on their behalf, invoiced in their names and reimbursed to N Tech Diesel.

Applying Section 67 and the Supreme Court authorities, it held that Rule 5 could not make the diesel cost taxable merely because N Tech Diesel incurred and recovered that cost while providing services. The reimbursed diesel value was not an amount charged as consideration for the taxable service; the service consideration was distinct from the diesel reimbursement. The Tribunal considered the reasoning in Adept applicable to the case.

Accordingly, the demand and related consequences founded on inclusion of the reimbursed diesel cost could not be sustained.