CESTAT Sets Aside ₹63.07 Lakh Service-Tax Demand Against Consulting Firm, Excluding Pre-2015 Reimbursements From Taxable Value

In brief

The question

1. Whether a body corporate was covered by the definition of “consulting engineer” before the 2005 amendment

The court held

The Tribunal held that bodies corporate were covered by the definition of consulting engineer before the 2005 amendment, but allowed the appeal because the pre-2015 demand concerned reimbursable expenses that could not be included in taxable value under the law applicable to the period

It also directed

It set aside the impugned order

01Facts

The appellant, a body corporate providing consulting-engineering services to the National Highways Authority of India (NHAI), paid service tax on staff remuneration for the period July 2003 to September 2005 but excluded amounts received under various expense heads, including travel, rent, utilities, printing and contingencies

p. 2

Five show-cause notices demanded a total of ₹1,01,01,701; following earlier appellate proceedings and a remand, the Commissioner (Appeals) confirmed ₹63,07,016

pp. 2–3

The appellant challenged that order before the Tribunal, arguing, among other things, that bodies corporate were not covered by the relevant definition before 1 May 2005 and that reimbursable expenses could not be included in taxable value

pp. 3–4

02Issues

i.1. Whether a body corporate was covered by the definition of “consulting engineer” before the 2005 amendment

pp. 4–5

ii.2. Whether reimbursable expenses could be included in the taxable value of consulting-engineering services for the period July 2003 to September 2005

pp. 5–6

03Law Applied

Sections 65(31) and 65(105)(g) of the Finance Act, 1994 governed the relevant definitions of “consulting engineer” and taxable consulting-engineering service

p. 2

In Commissioner of Central Excise, Raipur v. SEPCO Electric Power Construction Corporation, the Supreme Court held that bodies corporate were covered by the definition of consulting engineer even before the 2005 amendment

p. 4

Section 67 governed the valuation of taxable services; in Intercontinental Consultants and Technocrats Pvt. Ltd. v. Union of India, the Delhi High Court held Rule 5 of the Service Tax (Determination of Value) Rules, 2006 ultra vires Section 67 insofar as it required inclusion of reimbursable expenses, and the Supreme Court upheld that decision

p. 5

Section 67 was amended in 2015 to include reimbursable expenses in taxable value

p. 5

Provisions in the judgment · 2

Finance Act, 1994 Section 65Section 67

04Reasoning

The Tribunal rejected the appellant’s contention that bodies corporate were outside the definition of consulting engineer before the amendment, applying the Supreme Court’s ruling in SEPCO

p. 5

However, the demand at issue related to reimbursable expenses for a period before the 2015 amendment to Section 67.

pp. 5–6

Since Rule 5 could not, under Intercontinental Consultants, enlarge the taxable value beyond Section 67 for the relevant pre-amendment period, the expenses could not sustain the demand

pp. 5–6

The Tribunal did not separately determine the appellant’s submission that services to NHAI were exempt.