# UNION OF INDIA & ANR v. M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD

- **Citation:** [2018] 10 S.C.R. 309
- **Court:** Supreme Court of India
- **Decided:** 2018-03-07
- **Case number:** Civil Appeal No. 2013 of 2014
- **Bench:** A. K. Sikri, Ashok Bhushan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-anr-v-m-s-intercontinental-consultants-and-technocrats-pvt-ltd-32170
- **Pages:** 39

## Headnote

Service Tax (Determination of Value) Rules, 2006 - r.5 - If
ultra vires the provisions of ss.66, 67 of 1994 Act - RespondentsAssessees, provider of various services receive payments not only
for the services so rendered but are also reimbursed out of pocket
expenses incurred by them such as air travel, hotel stay, etc.-
Assessees paying service tax in respect of amounts received by them
for services so rendered but not for the out of pocket expenses
incurred by them, which was reimbursed by the clients - Under r.5,
the value of said reimbursable activities are also to be included as
part of services provided by the respondents - Challenge to - Writ
petition allowed by High Court - On appeal, held: Section 66 of
the 1994 Act is the charging section and refers to service tax, i.e. in
respect of those services which are taxable and specifically referred
to in various sub-clauses of s.65 of the 1994 Act - It is the value of
the services which are actually rendered, the value whereof is to be
ascertained for the purpose of calculating the service tax payable
thereupon - Any other amount which is calculated not for providing
such taxable service cannot be a part of that valuation - Thus,
service tax is to be paid only on the services actually provided by
the service provider - This is the plain meaning to be attached to
s.67 which deals with valuation of taxable services for charging
service tax - r.5 went much beyond the mandate of s.67 - High
Court was right in interpreting ss.66 and 67 to say that in the
valuation of taxable service, the value of taxable service shall be
the gross amount charged by the service provider 'for such service'
and the valuation of tax service cannot be anything more or less
than the consideration paid - Finance Act, 1994 - ss. 66, 67 and
s.94.
[2018] 10 S.C.R. 309
309
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[2018] 10 S.C.R.
Interpretation of Statutes - Conflict between statute (Act) and
subordinate legislation (Rules) - Held: Rules are framed for
achieving the purpose behind the provisions of the Act and thus,
cannot go beyond the statute - A rule which comes in conflict with
the main enactment has to give way to the provisions of the Act.
Dismissing the appeals and disposing of the transferred
writs, the Court
HELD: 1.1 Rule 5 of the Service Tax (Determination of
Value) Rules, 2006 brings within its sweep the expenses which
are incurred while rendering the service and are reimbursed,
that is, for which the service receiver has made the payments to
the assessees. As per these Rules, these reimbursable expenses
also form part of 'gross amount charged'. Prior to April 19, 2006,
i.e., in the absence of any such Rule, the valuation was to be
done as per the provisions of Section 67 of the Finance Act, 1994.
[Para 21] [343-E-F]
1.2 Section 67, Finance Act, 1994 refers to service tax, i.e.,
in respect of those services which are taxable and specifically
referred to in various sub-clauses of Section 65, Finance Act,
1994. Further, it also specifically mentions that the service tax
will be @ 12% of the 'value of taxable services'. Thus, service
tax is in reference to the value of service. As a necessary corollary,
it is the value of the services which are actually rendered, the
value whereof is to be ascertained for the purpose of calculating
the service tax payable thereupon. In this hue, the expression
'such' occurring in Section 67 of the Act assumes importance. In
other words, in valuation of taxable services for charging service
tax, the authorities are to find what is the gross amount charged
for providing 'such' taxable services. As a fortiori, any other
amount which is calculated not for providing such taxable service
cannot a part of that valuation as that amount is not calculated for
providing such 'taxable service'. That is the plain meaning which
is to be attached to Section 67 (unamended, i.e., prior to May 01,
2006) or after its amendment, with effect from, May 01, 2006.
Once this interpre

## Text

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UNION OF INDIA & ANR.
v.
M/S. INTERCONTINENTAL CONSULTANTS AND
TECHNOCRATS PVT. LTD.
(Civil Appeal No. 2013 of 2014)
MARCH 07, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Service Tax (Determination of Value) Rules, 2006 - r.5 - If
ultra vires the provisions of ss.66, 67 of 1994 Act - RespondentsAssessees, provider of various services receive payments not only
for the services so rendered but are also reimbursed out of pocket
expenses incurred by them such as air travel, hotel stay, etc.-
Assessees paying service tax in respect of amounts received by them
for services so rendered but not for the out of pocket expenses
incurred by them, which was reimbursed by the clients - Under r.5,
the value of said reimbursable activities are also to be included as
part of services provided by the respondents - Challenge to - Writ
petition allowed by High Court - On appeal, held: Section 66 of
the 1994 Act is the charging section and refers to service tax, i.e. in
respect of those services which are taxable and specifically referred
to in various sub-clauses of s.65 of the 1994 Act - It is the value of
the services which are actually rendered, the value whereof is to be
ascertained for the purpose of calculating the service tax payable
thereupon - Any other amount which is calculated not for providing
such taxable service cannot be a part of that valuation - Thus,
service tax is to be paid only on the services actually provided by
the service provider - This is the plain meaning to be attached to
s.67 which deals with valuation of taxable services for charging
service tax - r.5 went much beyond the mandate of s.67 - High
Court was right in interpreting ss.66 and 67 to say that in the
valuation of taxable service, the value of taxable service shall be
the gross amount charged by the service provider 'for such service'
and the valuation of tax service cannot be anything more or less
than the consideration paid - Finance Act, 1994 - ss. 66, 67 and
s.94.
[2018] 10 S.C.R. 309
309
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SUPREME COURT REPORTS
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Interpretation of Statutes - Conflict between statute (Act) and
subordinate legislation (Rules) - Held: Rules are framed for
achieving the purpose behind the provisions of the Act and thus,
cannot go beyond the statute - A rule which comes in conflict with
the main enactment has to give way to the provisions of the Act.
Dismissing the appeals and disposing of the transferred
writs, the Court
HELD: 1.1 Rule 5 of the Service Tax (Determination of
Value) Rules, 2006 brings within its sweep the expenses which
are incurred while rendering the service and are reimbursed,
that is, for which the service receiver has made the payments to
the assessees. As per these Rules, these reimbursable expenses
also form part of 'gross amount charged'. Prior to April 19, 2006,
i.e., in the absence of any such Rule, the valuation was to be
done as per the provisions of Section 67 of the Finance Act, 1994.
[Para 21] [343-E-F]
1.2 Section 67, Finance Act, 1994 refers to service tax, i.e.,
in respect of those services which are taxable and specifically
referred to in various sub-clauses of Section 65, Finance Act,
1994. Further, it also specifically mentions that the service tax
will be @ 12% of the 'value of taxable services'. Thus, service
tax is in reference to the value of service. As a necessary corollary,
it is the value of the services which are actually rendered, the
value whereof is to be ascertained for the purpose of calculating
the service tax payable thereupon. In this hue, the expression
'such' occurring in Section 67 of the Act assumes importance. In
other words, in valuation of taxable services for charging service
tax, the authorities are to find what is the gross amount charged
for providing 'such' taxable services. As a fortiori, any other
amount which is calculated not for providing such taxable service
cannot a part of that valuation as that amount is not calculated for
providing such 'taxable service'. That is the plain meaning which
is to be attached to Section 67 (unamended, i.e., prior to May 01,
2006) or after its amendment, with effect from, May 01, 2006.
Once this interpretation is to be given to Section 67, it hardly
needs to be emphasised that Rule 5 of the 2006 Rules went much
beyond the mandate of Section 67. The High Court was right in
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interpreting Sections 66 and 67, Finance Act, 1994 to say that in
the valuation of taxable service, the value of taxable service shall
be the gross amount charged by the service provider 'for such
service' and the valuation of tax service cannot be anything more
or less than the consideration paid as quid pro quo for rendering
such a service. This position did not change even in the amended
Section 67 which was inserted on May 01, 2006. Sub-section (4)
of Section 67 empowers the rule making authority to lay down
the manner in which value of taxable service is to be determined.
However, Section 67(4) is expressly made subject to the
provisions of sub-section (1). Mandate of sub-section (1) of Section
67 is manifest, viz., the service tax is to be paid only on the
services actually provided by the service provider. It is trite
that rules cannot go beyond the statute. [Paras 23-26] [343-G-H;
344-A-G]
1.3 A rule which comes in conflict with the main enactment
has to give way to the provisions of the Act. Rules are framed for
achieving the purpose behind the provisions of the Act. [Paras
27, 28] [345-B]
CIT v. S. Chenniappa Mudaliar (1969) 74 ITR 41 -
relied on.
1.4 In the present case, the aforesaid view gets strengthened
from the manner in which the Legislature itself acted. Realising
that Section 67, dealing with valuation of taxable services, does
not include reimbursable expenses for providing such service,
the Legislature amended by Finance Act, 2015 with effect from
May 14, 2015, whereby Clause (a) which deals with 'consideration'
is suitably amended to include reimbursable expenditure or cost
incurred by the service provider and charged, 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, such reimbursable expenditure or cost would also form
part of valuation of taxable services for charging service tax.
Though, it was not argued by the Department that Section 67 is a
declaratory provision, nor could it be argued so, as it is found
that this is a substantive change brought about with the
amendment to Section 67 and therefore, has to be prospective in
nature. [Para 29] [345-D-F]
UNION OF INDIA v. M/S. INTERCONTINENTAL
CONSULTANTS AND TECHNOCRATS
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CIVIL APPEAL NO. 6865 OF 2014, CIVIL APPEAL NO. 6864
OF 2014, CIVIL APPEAL NO. 4975 OF 2016, CIVIL APPEAL
NO. 5130 OF 2016 AND CIVIL APPEAL NOS. 4536-4537 OF
2016
1.5 In the aforesaid appeals, the issue is as to whether the
value of free supplies of diesel and explosives in respect of the
service of 'Site Formation and Clearance Service' can be included
for the purpose of assessment to service tax under Section 67 of
the Act. These assessees had not availed the benefit of Notification
Nos.15/2004 and 4/2005. Therefore, the issue has to be adjudged
simply by referring to Section 67 of the Act. It has been already
held above that the value of such material which is supplied free
by the service recipient cannot be treated as 'gross amount
charged' and that is not the 'consideration' for rendering the
services. Therefore, value of free supplies of diesel and explosives
would not warrant inclusion while arriving at the gross amount
charged on its service tax is to be paid. Therefore, all these
appeals are also dismissed. [Para 31] [347-C-E]
TRANSFER PETITION (CIVIL) NOS. 1043-1045 OF 2017
TRANSFER PETITION (CIVIL) NOS. 1932-1934 OF 2017
1.6 These transfer petitions are allowed and the writ
petitions mentioned in the prayer clause, which are pending
before the High Court of Madras, are transferred to Supreme
Court. The transferred writs are also disposed of in terms of the
judgment rendered above in Civil Appeal No. 2013 of 2014 and
other connected matters. [Paras 32, 33] [347-F]
Union of India & Ors. v. Bengal Shrachi Housing
Development Limited & Anr. (2018) 1 SCC 311 -
distinguished.
Babaji Kondaji Garad v. Nasik Merchants Co-operative
Bank Ltd. (1984) 2 SCC 50 : [1984] 1 SCR 767; CIT,
Andhra Pradesh v. Taj Mahal Hotel (1971) 82 ITR 44
- relied on.
Jain Brothers v. Union of India (1970) 77 ITR 107;
Central Bank of India & Ors. v. Workmen, etc. [1960] 1
SCR 200; State of U.P. & Ors. v. Babu Ram Upadhya
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[1961] 2 SCR 679; Bimal Chandra Banerjee v. State of
M.P. & Ors. (1971) 81 ITR 105; Commissioner of
Customs and Excise v. Cure and Deeley Ltd (1961) 3
WLR 788 (QB); Union of India & Ors. v. Bombay Tyre
International Limited & Ors. (1984) 1 SCC 467 : [1984]
1 SCR 347; Mathuram Agrawal v. State of Madhya
Pradesh (1999) 8 SCC 667 : [1999] 4 Suppl. SCR 195;
Govind Saran Ganga Saran v. Commissioner of Sales
Tax & Ors. (1985) Suppl. SCC 205 : [1985] 3 SCR
985; Commissioner of Income Tax (Central)-I, New Delhi
v. Vatika Township Private Limited (2015) 1 SCC 1 :
[2014] 12 SCR 1037- referred to.
Case Law Reference
(1970) 77 ITR 107
referred to
Para 10
[1960] 1 SCR 200
referred to
Para 10
[1961] 2 SCR 679
referred to
Para 10
(1971) 81 ITR 105
referred to
Para 10
(2018) 1 SCC 311
distinguished
Para 13
[1984] 1 SCR 347
referred to
Para 14
[1999] 4 Suppl. SCR 195
referred to
Para 18
[1985] 3 SCR 985
referred to
Para 18
[1984] 1 SCR 767
relied on
Para 26
(1969) 74 ITR 41
relied on
Para 27
(1971) 82 ITR 44
relied on
Para 28
[2014] 12 SCR 1037
referred to
Para 29
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2013
of 2014
From the Judgment and Order dated 30.11.2012 of the High Court
of Delhi at New Delhi in Writ Petition (C) No. 6370 of 2008.
With
Civil Appeal Nos. 295-299, 2021, 4340-4341, 6866, 7685, 7688,
6864 and 6865 of 2014.
UNION OF INDIA v. M/S. INTERCONTINENTAL
CONSULTANTS AND TECHNOCRATS
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Civil Appeal Nos. 8056 and 3360 of 2015
Transfer Petition (Civil) Nos. 1043-1045, 1932-1934 of 2017
Civil Appeal Nos. 6090, 10626-10627, 10223-10224, 5444 of 2017
Civil Appeal Nos. 4536-4537, 5130, 4975 and 5453 of 2016.
K. Radhakrishnan, Sr. Adv., Ms. Nisha Bagchi, Ms. B. Sunita
Rao, Anurag, Shashank Kumar, Rajiv Nanda, Ms. Shirin Khajuria, Rupesh
Kumar, Ms. Pooja Sharma, Ms. Sanskriti Bhardwaj, B. Krishna Prasad,
Advs. for the Appellants.
Susmit Pushkar, Abhijeet Swaroop, Ayush Mehrotra, Praveen
Swarup, Pravin Satale, Rajiv Shankar Dvivedi, S. Sunil, Sudarshan Singh
Rawat, Aravindh S., Mohinder Jit Singh, J. K. Mittal, Rajveer Singh,
Sumit Batra, Nikhil Gupta, Advs. for the Respondent.
The Judgment of the Court was delivered by
A. K. SIKRI, J. 1. In all these appeals, legal issue that needs
determination is almost identical, though there may be little variation on
facts. This difference pertains to the nature of services provided by the
respondents/assessees who are all covered by the service tax. The
fringe diferences in the nature of services, however, nature of differences,
however, has no impact on the final outcome.
2. All the assessees are paying service tax. The services which
these assessees are rendering broadly fall in the following four categories:
(a) Consulting engineering services.
(b) Share transfer agency services.
(c) Custom house agent services covered by the head 'clearing
 and forwarding agent'.
(d) The site formation and clearances, excavation and earth moving
 and demolition services.
3. While rendering the aforesaid services, the assessees are also
getting reimbursement in respect of certain activities undertaken by them
which according to them is not includable to arrive at 'gross value' charged
from their clients. As per Rule 5 of the Service Tax (Determination of
Value) Rules, 2006 (hereinafter referred to as the 'Rules'), the value of
the said reimbursable activities is also to be included as part of services
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provided by these respondents. Writ petitions were filed by the assessees
challenging the vires of Rule 5 of the Rules as unconstitutional as well
as ultra vires the provisions of Sections 66 and 67 of Chapter V of the
Finance Act, 1994 (hereinafter referred to as the 'Act'). The High
Court of Delhi has, by the judgment dated November 30, 2012, accepted
the said challenge and declared Rule 5 to be ultra vires these provisions.
Other cases have met similar results by riding on the judgment dated
November 30, 2012. This necessitates examining the the correctness of
the judgment of the Delhi High Court and outocme thereof would
determine the fate of all these appeals/transfer petitions.
4. This judgment was rendered by the High court in the writ petition
filed by M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. out
of which Civil Appeal No. 2013 of 2014 arises. Therefore, for our purpose,
it would suffice to advert to the facts of this appeal and take note of the
reasons which have prevailed with the High Court in arriving at this
conclusion.
5. The assessee M/s. Intercontinental Consultants and Technocrats
Pvt. Ltd. is a provider of consulting engineering services. It specialises
in highways, structures, airports, urban and rural infrastructural projects
and is engaged in various road projects outside and inside India. In the
course of the carrying on of its business, the petitioner rendered
consultancy services in respect of highway projects to the National
Highway Authority of India (NHAI). The petitioner receives payments
not only for its service but is also reimbursed expenses incurred by it
such as air travel, hotel stay, etc. It was paying service tax in respect of
amounts received by it for services rendered to its clients. It was not
paying any service tax in respect of the expenses incurred by it, which
was reimbursed by the clients. On 19.10.2007, the Superintendent (Audit)
Group II (Service Tax), New Delhi issued a letter to the petitioner on the
subject "service tax audit for the financial year 2002-03 to 2006-07. In
this letter, it was mentioned by the appellant that service tax was liable
to be charged on the gross value including reimbursable and out of pocket
expenses like travelling, lodging and boarding etc. and the respondent
was directed to deposit the due service tax along with interest @13%
under Sections 73 and 75 respectively of the Act. In response, the
respondent provided month-wise detail of the professional income as
well as reimbursable out of pocket expenses for the period mentioned in
the aforesaid letter. Thereafter, a show cause notice dated March 17,
UNION OF INDIA v. M/S. INTERCONTINENTAL
CONSULTANTS AND TECHNOCRATS [A. K. SIKRI, J.]
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2008 was issued by the Commissioner, Service Tax, Commissionerate
vide which the respondent was asked to show cause as to why the
service tax should not be recovered by including the amounts of
reimbursable which were received by the respondent, pointing out these
were to be included while arriving at the gross value as per provisions of
Rule 5(1) of the Rules.
6. Rule 5 was brought into existence w.e.f. June 01, 2007. The
demand which was made in the show cause notice was covered by the
period from October, 2002 to March, 2007. Against this show cause
notice, the respondent preferred Writ Petition No. 6370 of 2008 in the
High Court of Delhi challenging the vires thereof with three prayers,
namely:
(i) for quashing Rule 5 in its entirety of the Service Tax
(Determination of Value) Rules, 2006 to the extent it includes the
reimbursement of expenses in the value of taxable service for the
purpose of charging service tax; and
(ii) for declaring the rule to be unconstitutional and ultra vires
Sections 66 and 67 of the Finance Act, 1994; and
(iii) for quashing the impugned show-cause notice-cum-demand
dated 17.03.2008 holding that it is illegal, arbitrary, without
jurisdiction and unconstitutional.
7. Rule 5, which provides for 'inclusion in or exclusion from the
value of certain expenditure or costs', is reproduced below in order to
understand its full implication:
"5. Inclusion in or exclusion from value of certain expenditure or
costs.
(1) Where any expenditure or costs are incurred by the service
provider in the course of providing taxable service, all such
expenditure or costs shall be treated as consideration for the
taxable service provided or to be provided and shall be included in
the value for the purpose of charging service tax on the said
service.
(2) Subject to the provisions of sub rule (1), the expenditure or
costs incurred by the service provider as a pure agent of the
recipient of service, shall be excluded from the value of the taxable
service if all the following conditions are satisfied, namely:
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• the service provider acts as a pure agent of the recipient of
service when he makes payment to third party for the goods
or services procured;
• the recipient of service receives and uses the goods or
services so procured by the service provider in his capacity
as pure agent of the recipient of service;
• the recipient of service is liable to make payment to the
third party;
• the recipient of service authorities the service provider
to make payment on his behalf;
• the recipient of service knows that the goods and services
for which payment has been made by the service provider
shall be provided by the third party;
• the payment made by the service provider on behalf of the
recipient of service has been separately indicated in the
invoice issued by the service provider to the recipient of
service;
• the service provider recovers from the recipient of
service only such amount as has been paid by him to the
third party; and
• the goods or services procured by the service provider from
the third party as a pure agent of the recipient of service
are in addition to the services he provides on his own account.
 Explanation 1 : For the purposes of sub rule (2), "pure agent"
means a person who -
• enters into a contractual agreement with the recipient
of service to act as his pure agent to incur expenditure or
costs in the course of providing taxable service;
• neither intends to hold nor holds any title to the goods
or services so procured or provided as pure agent of the
recipient of service;
UNION OF INDIA v. M/S. INTERCONTINENTAL
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• does not use such goods or services so procured; and
• receives only the actual amount incurred to procure such
goods or services.
Explanation 2 : For the removal of doubts it is clarified that
the value of the taxable service is the total amount of
consideration consisting of all components of the taxable
service and it is immaterial that the details of individual
components of the total consideration is indicated separately
in the invoice.
Illustration 1 : X contracts with Y, a real estate agent to sell
his house and thereupon Y gives an advertisement in television.
Y billed X including charges for Television advertisement and
paid service tax on the total consideration billed. In such a
case, consideration for the service provided is what X pays
to Y. Y does not act as an agent behalf of X when obtaining
the television advertisement even if the cost of television
advertisement is mentioned separately in the invoice issued
by X. Advertising service is an input service for the estate
agent in order to enable or facilitate him to perform his services
as an estate agent.
Illustration 2 : In the course of providing a taxable service, a
service provider incurs costs such as traveling expenses,
postage, telephone, etc., and may indicate these items
separately on the invoice issued to the recipient of service. In
such a case, the service provider is not acting as an agent of
the recipient of service but procures such inputs or input
service on his own account for providing the taxable service.
Such expenses do not become reimbursable expenditure
merely because they are indicated separately in the invoice
issued by the service provider to the recipient of service.
Illustration 3 : A contracts with B, an architect for building a
house. During the course of providing the taxable service, B
incurs expenses such as telephone charges, air travel tickets,
hotel accommodation, etc., to enable him to effectively perform
the provision of services to A. In such a case, in whatever
form B recovers such expenditure from A, whether as a
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separately itemised expense or as part of an inclusive overall
fee, service tax is payable on the total amount charged by B.
Value of the taxable service for charging service tax is what
A pays to B.
Illustration 4 : Company X provides a taxable service of rent
cab by providing chauffeur driven cars for overseas visitors.
The chauffeur is given a lump sum amount to cover his food
and overnight accommodation and any other incidental
expenses such as parking fees by the Company X during the
tour. At the end of the tour, the chauffeur returns the balance
of the amount with a statement of his expenses and the
relevant bills. Company X charges these amounts from the
recipients of service. The cost incurred by the chauffeur and
billed to the recipient of service constitutes part of gross
amount charged for the provision of services by the company
X."
8. The case set up by the respondent in the writ petition was that
Rule 5(1) of the Rules, which provides that all expenditure or cost incurred
by the service provider in the course of providing the taxable services
shall be treated as consideration for the taxable services and shall be
included in the value for the purpose of charging service tax, goes beyond
the mandate of Section 67. It was argued that Section 67 which deals
with valuation of taxable services for charging service tax does not provide
for inclusion of the aforesaid expenditure or cost incurred while providing
the services as they cannot be treated as element/components of service.
Section 67 was amended by Finance Act, 2006 w.e.f. May 01, 2006.
Since the cases before us involve period prior to the aforesaid amendment
as well as post amendment period, it would apt to take note of both
unamended and amended provisions. Unamended Section 67 was in
the following form:
""67. Valuation of taxable services for charging service tax.
For the purposes of this Chapter, the value of any taxable service
shall be the gross amount charged by the service provider for
such provided or to be provided by him.
Explanation 1. For the removal of doubts, it is hereby declared
that the value of a taxable service, as the case may be, includes,
UNION OF INDIA v. M/S. INTERCONTINENTAL
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(a) the aggregate of commission or brokerage charges by a broker
on the sale or purchase of securities including the commission or
brokerage paid by the stock broker to any sub broker.
(b) the adjustments made by the telegraph authority from any
deposits made by the subscriber at the time of application for
telephone connection or pager or facsimile or telegraph or telex
or for leased circuit;
(c) the amount of premium charged by the insurer from the policy
holder;
(d) the commission received by the air travel agent from the airline;
(e) the commission, fee or any other sum received by an actuary,
or intermediary or insurance intermediary or insurance agent from
the insurer;
(f) the reimbursement received by the authorized service station
from manufacturer for carrying out any service of nay motor car,
light motor vehicle or two wheeled motor vehicle manufactured
by such manufacturer; and
(g) the commission or any amount received by the rail travel agent
from the Railways or the customer.
But does not include -
(i) initial deposit made by the subscriber at the time of application
for telephone connection or pager or facsimile (FAX) or telephone
or telex or for leased circuit;
(ii) the cost of unexposed photography film, unrecorded magnetic
tape or such other storage devices, if any, sold to the client during
the course of providing the service;
(iii) the cost of parts or accessories, or consumable such as
lubricants and coolants, if any, sold to the customer during the
course of service or repair of motor cars, light motor vehicle or
two wheeled motor vehicles;
(iv) the airfare collected by air travel agent in respect of service
provided by him;
(v) the rail fare collected by rail travel agent in respect of service
provided by him;
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(vi) the cost of parts or other material, if any, sold to the customer
during the course of providing maintenance or repair service;
(vii) the cost of parts or other material, if any, sold to the customer
during the course of providing erection, commissioning or
installation service; and
(viii) interest on loan.
Explanation 2 - Where the gross amount charged by a service
provider is inclusive of service tax payable, the value of taxable
service shall be such amount as with the addition of tax payable,
is equal to the gross amount charged.
Explanation 3. For the removal of doubts, it is hereby declared
that the gross amount charged for the taxable service shall include
any amount received towards the taxable service before, during
or after provision of such service."
9. After its amendment w.e.f. May 01, 2006, a much shorter version
was introduced which reads as under:
"67. Valuation of taxable services for charging service tax.
(1) Subject to the provisions of this Chapter, where service tax is
chargeable on any taxable service with reference to its value,
then such value shall,
(i) in a case where the provision of service is for a consideration
in money, be the gross amount charged by the service provider
for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration
not wholly or partly consisting of money, be such amount in money
as, with the addition of service tax charged, is equivalent to the
consideration;
(iii) in a case where the provision of service is for a consideration
which is not ascertainable, be the amount as ay be determined in
the prescribed manner.
(2) Where the gross amount charged by a service provider, for
the service provided or to be provided is inclusive of service tax
payable, the value of such taxable service shall be such amount
as, with the addition of tax payable, is equal to the gross amount
charged.
UNION OF INDIA v. M/S. INTERCONTINENTAL
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(3) The gross amount charged for the taxable service shall include
any amount received towards the taxable service before, during
or after provision of such service.
(4) Subject to the provisions of sub sections (1), (2) and (3), the
value shall be determined in such manner as may be prescribed.
Explanation: For the purpose of this section,
(a) "consideration" includes any amount that is payable for the
taxable services provided or to be provided;
(b) "money" includes any currency, cheque, promissory note, letter
of credit, draft, pay order, travelers cheque, money order, postal
remittance and other similar instruments but does not include
currency that is held for its numismatic value;
(c) "gross amount charged" includes payment by cheque, credit
card, deduction from account and any form of payment by issue
of credit notes or debit notes and book adjustment, and any amount
credited or debited, as the case may be, to any account, whether
called "Suspense account" or by any other name, in the books of
accounts of a person liable to pay service tax, where the transaction
of taxable service is with any associated enterprise."
10. The High Court, after taking note of the aforesaid provisions,
noted that the provisions both amended and unamended Section 67
authorised the determination of value of taxable services for the purpose
of charging service tax under Section 66 (which is a charging section)
as the gross amount charged by the service provider for such services
provided or to be provided by him, in a case where the consideration for
the service is money. Emphasising on the words 'for such service', the
High Court took the view that the charge of service tax under Section
66 has to be on the value of taxable service i.e. the value of service
rendered by the assessee to the NHAI, which is that of a consulting
engineer, that can be brought to charge and nothing more. The
quantification of the value of the service can, therefore, never exceed
the gross amount charged by the service provider for the service provided
by him. On that analogy, the High Court has opined that scope of Rule
5 goes beyond the Section which was impermissible as the Rules which
have been made under Section 94 of the Act can only be made 'for
carrying out the provisions of this Chapter' (Chapter V of the Act)
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which provides for levy quantification and collection of the service tax.
In the process, the High Court observed that the expenditure or cost
incurred by the service provider in the course of providing the taxable
service can never be considered as the gross amount charged by the
service provider 'for such service' provided by him, and illustration 3
given below the Rule which included the value of such services was a
clear example of breaching the boundaries of Section 67. The High
Court even went on to hold further pointed out that it may even result in
double taxation inasmuch as expenses on air travel tickets are already
subject to service tax and are included in the bill. No doubt, double
taxation was permissible in law but it could only be done if it was
categorically provided for and intended; and could not be enforced by
implication as held in Jain Brothers v. Union of India1. The High
Court has also referred to many judgments of this Court for the proposition
that Rules cannot be over-ride or over-reach the provisions of the main
enactment2. The High Court also referred to the judgment of Queens
Bench of England in the case of Commissioner of Customs and Excise
v. Cure and Deeley Ltd.3.
11. Mr. K. Radhakrishnan, learned senior counsel argued for the
appellant, ably assisted by Ms. Nisha Bagchi, advocate who also made
significant contribution by arguing some of the nuances of the issue
involved. Submission of the learned counsel appearing for the appellant/
Department was that prior to April 19, 2006 i.e. in the absence of Rule 5
of the Rules, the value of taxable services was covered by Section 67 of
the Act. As per this Section, the value of taxable services in relation to
consulting engineering services provided or to be provided by a consulting
engineer to the client shall be the gross amount charged for a consideration
or in money from the client in respect of engineering services. The
expression 'gross amount charged' would clearly include all the amounts
which were charged by the service provider and would not be limited to
the remuneration received from the customer. The very connotation
1 (1970) 77 ITR 107
2 Central Bank of India & Ors. v. Workmen, etc., (1960) 1 SCR 200; Babaji Kondaji
 Garad v. Nasik Merchants Co-operative Bank Ltd., (1984) 2 SCC 50; State of U.P. &
 Ors. v. Babu Ram Upadhya, (1961) 2 SCR 679; CIT v. S. Chenniappa Mudaliar,
 (1969) 74 ITR 41; Bimal Chandra Banerjee v. State of M.P. & Ors., (1971) 81 ITR
 105 and CIT, Andhra Pradesh v. Taj Mahal Hotel, (1971) 82 ITR 44
3 (1961) 3 WLR 788 (QB)
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'gross amount charged' denotes the total amount which is received in
rendering those services and would include the other amounts like
transportation, office rent, office appliances, furniture and equipments
etc. It was submitted that this expenditure or cost would be part of
consideration for taxable services. It was, thus, argued that essential
input cost had to be included in arriving at gross amount charged by a
service provider.
12. It was further submitted that Section 67 of the Act was amended
w.e.f. May 01, 2006 and this also retained the concept of 'the gross
amount charged' for the purpose of arriving at valuation on which the
service tax is to be paid. The learned counsel pointed out that subsection (4) of amended Section 67 categorically provides that the value
has to be determined in such a manner as may be prescribed and in
pursuant thereto, Rule 5 of the Rules which came into effect from June
01, 2007, provided for 'inclusion in or exclusion from value of certain
expenditure or costs'. It was submitted that there was no dispute that
as per this Rule, all such expenditure or costs which are incurred by the
service provider in the course of providing taxable services are to be
treated as consideration for the taxable services provided or to be provided
for arriving at valuation for the purpose of charging service tax, except
those costs which were specifically excluded under sub-rule (2) of Rule
5. Submission was that since Section 67 specifically lays down the
principle of gross amount charged by a service provider for the services
provided or to be provided, Rule 5 did not go contrary to Section 67 as it
only mentions what would be the meaning of gross amount charged.
13. In the aid of this submission, the learned counsel sought to
take help from principle laid down in excise law and submitted that it is
held by this Court in Union of India & Ors. v. Bengal Shrachi Housing
Development Limited & Anr.4 that same principles as applicable in
excise law are applicable while examining service tax matters. Reliance
was placed on paragraph 22 of the said judgment to support this
proposition. However, we may point out at this stage itself that the
context in which the observations were made were entirely different.
The issue was as to whether service tax, which is an indirect tax, can be
passed on by the service provider to the recepient of the service and, in
this hue, the matter was discussed, as can be seen from the combined
reading of paragraphs 21 and 22 which are to the following effect:
4 (2018) 1 SCC 311
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"21. It is thus clear that the judgments of this Court which
referred to service tax being an indirect tax have reference
only to service tax being an indirect tax in economic theory
and not constitutional law. The fact that service tax may not, in
given circumstances, be passed on by the service provider to
the recipient of the service would not, therefore, make such
tax any the less a service tax. It is important to bear this in
mind, as the main prop of Shri Jaideep Gupta's argument is
that service tax being an indirect tax which must be passed on
by virtue of the judgments of this Court, would make the
recipient of the service the person on whom the tax is primarily
leviable.
22. Let us now examine some of the judgments relating to
another indirect tax, namely, excise duty. Like service tax,
excise duty is also in the economic sense, an indirect tax. The
levy is on manufacture of goods; and the taxable person is
usually the manufacturer of those goods. InCentral Provinces
and Berar Sales of Motor Spirit and Lubricants Taxation
Act, 1938, In re, the Federal Court decided, through Maurice
Gwyer, C.J., that excise duty under the Government of India
Act, 1935 is a power to impose duty of excise upon the
manufacturer of excisable articles at the stage of or in
connection with manufacture or production. In a separate
judgment, Jayakar, J. held that all duties of excise are levied on
manufacture of excisable goods and can be levied and collected
at any subsequent stage up to consumption."
14. It was also submitted that while dealing with the valuation of
a taxable service, the provision which deals with valuation has to be
taken into consideration and no assistance can be taken from charging
section, as held in Union of India & Ors. v. Bombay Tyre International
Limited & Ors.5:
"8. Mr N.A. Palkhivala, learned counsel for the assessees,
has propounded three principles which, he contends, form the
essential characteristics of a duty of excise. Firstly, he says,
excise is a tax on manufacture or production and not on anything
else. Secondly, uniformity of incidence is a basic characteristic
of excise. And thirdly, the exclusion of post-manufacturing
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expenses and post-manufacturing profits is necessarily involved
in the first principle and helps to achieve the second. Learned
counsel urges that where excise duty is levied on an ad valorem
basis the value on which such duty is levied is a "conceptual
value", and that the conceptual nature is borne out by the
circumstance that the identity of the manufacturer and the
identity of the goods as well as the actual wholesale price
charged by the manufacturer are not the determining factors.
It is urged that the old Section 4(a) clearly indicates that a
conceptual value forms the basis of the levy, and that the actual
wholesale price charged by the particular assessee cannot be
the basis of the excise levy. It is said that the criterion adopted
in clause (a) succeeds in producing uniform taxation, whether
the assessees are manufacturers who sell their goods in
wholesale, semi-wholesale or in retail, whether they have a
vast selling and marketing network or have none, whether they
sell at depots and branches or sell at the factory gate, and
whether they load the ex-factory price with post-manufacturing
expenses and profits or do not do so. Because the value of the
article rests on a conceptual base, it is urged, the result of the
assessment under Section 4(a) cannot be different from the
result of an assessment under Section 4(b). The contention is
that the principle of uniformity of taxation requires the exclusion
of post-manufacturing expenses and profits, a factor which
would vary from one manufacturer to another. It is pointed out
that such exclusion is necessary to create a direct and
immediate nexus between the levy and the manufacturing
activity, and to bring about a uniformity in the incidence of the
levy. Learned counsel contends that the position is the same
under the new Section 4 which, he says, must need be so
because of the fundamental nature of the principles propounded
earlier. Referring to the actual language of the new Section
4(1)(a), it is pointed out that the expression "normal price"
therein means "normal for the purposes of excise", that is to
say, that the price must exclude post-manufacturing expenses
and post-manufacturing profit and must not be loaded with
any extraneous element. It is conceded, however, that under
the new Section 4(1)(a) there is no attempt to preserve
uniformity as regards the amount of duty between one
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manufacturer and another, but it is urged that the basis on which
the value is determined is constituted by the same conceptual
criterion, that post-manufacturing expenses and postmanufacturing profit must be excluded.