BMR Edge-Tax & Regulatory Mont - BMR Advisors

(Determination of Value Rules), 2006 (‘Valuation Rules’). The taxpayers submitted
that Rule 5(1) of the Valuation Rules, in as much as it provides for including all
expenditure or costs incurred by the service provider in the course of providing the
taxable service in the taxable value of services, travels beyond the mandate of Section
67 of the Finance Act. Accordingly, the taxpayers submitted that it is only the value of
service that is to say; the value of the consulting engineering service rendered by the
taxpayer to NHAI that can be brought to charge and nothing more and thus, Rule 5(1)
of the Valuation Rules is ultra vires Section 67 of the Finance Act.
On analysing relevant provisions of service tax laws and after going through the above
submissions, the HC held that:
On a combined reading of section 66 and section 67 of the Finance Act it is clear
that in determining the taxable value only consideration actually paid as quid pro
quo for the service can be brought to charge. The expenditure or costs incurred by
the service provider in the course of providing the taxable service cannot be
considered as the gross amount charged by the service provider ‘for such service’
provided by him;
Therefore, the provisions of Rule 5(1) to the extent it seeks to include expenses
incurred for providing a taxable service in the value of taxable service, exceeds
the mandate of section 67 of the Finance Act.
While the Central Government has powers under section 94 of the Finance Act to
make rules, such power to make rules cannot exceed the scope of levy envisaged
under the Finance Act/ charging section.
Therefore, Rule 5(1) of the Valuation Rules, to the extent it provides for inclusion
of expenditure incurred in the course of provision of taxable service, in the value
of taxable service, is ultra vires the provisions of section 66 and 67 of the Finance
Act.
Intercontinental Consultants and Technocrats Pvt Ltd v UOI (2012-TIOL-966-HC-
Del-ST)
Whether premium received by the insurance company is inclusive of service tax or not
would depend on the terms of contract pursuant to which insurance policy is executed
and the conduct of the company. Non-disclosure of real prices at which the service is
provided along with prevailing statutory taxes and levies amounts to unfair trade
practices pursuant to which taxes cannot be recovered from the customers at a later
stage
The taxpayer was a public limited company engaged in providing life insurance and
other similar services. With respect to a 20 year life insurance policy sold to their
customers, the taxpayer, till the fourth instalment, collected premium without any
charge of service tax. However, in the fourth instalment, the taxpayer charged service
tax in addition to the premium. The same was objected by one of the customers. Not
satisfied with the explanation of the taxpayers, the customer moved to ‘Insurance
Ombudsman’ with the complaint. The Insurance Ombudsman accepted the case of
the customer that the premium receivable should be inclusive of tax.
Aggrieved by the same, the taxpayers preferred an appeal with the Kerala HC wherein
the taxpayer contended that it is the duty of the service recipient to pay tax. The
customer did not dispute the liability of service tax. However, he contended that the
premium stated to him by the taxpayer at the time of canvassing the policy was
inclusive of service tax and other levies.
The appeal was dismissed on the grounds that it depends on the terms of the contract
pursuant to which insurance policy is executed whether premium is inclusive of service
tax or not. Policy document and the premium receipts issued for first three annual
premiums did not contain statement that it did not include statutory taxes and levies.
Further, the taxpayers did not claim service tax till fourth instalment, which
communicated through their conduct that the premiums were inclusive of service tax.
It was more so since policy was issued when service tax was in force and premium
was fixed by the taxpayer taking into account the nature of business, viability and
profit. In the event the premium offered didn’t include the service tax, the taxpayers, in
the normal course, should have disclosed the same.
Further, the HC held that non- disclosure of real price at which the service is provided
along with prevailing statutory taxes and levies amounts to misleading vis a vis price,
which is an unfair trade practice under Section 2(r)(l)(ix) of Consumer Protection Act,
1986. Without such disclosure of the duties and levies at the time of transaction, the
taxpayers are not entitled to claim them from customer at a later stage during course of
continuing service.
Max New York Life Insurance Co Ltd v Insurance Ombudsman [2012-28-STR-453
(Ker)]
Back office activities like preparation of tax returns, co-sourcing services, analyzing
client data and calculating estimates of tax amount would not qualify as Information
Technology services even though they are performed by using computer programs