HIGH COURT OF DELHI
Intercontinental Consultants & Technorats (P.) Ltd.
Versus
Union of India
W.P. (C) NO. 6370 OF 2008
NOVEMBER 30, 2012
ORDER
R.V. Easwar, J.
In this writ petition, the petitioner challenges the constitutional validity of Rule 5 of the Service Tax (Determination of Value) Rules, 2006 to the extent it includes re-imbursement of expenses in the value of taxable services for the purposes of levy of service tax. The petitioner also contends, in the alternative that the said rule is ultra vires of the provisions of Section 66 and 67 of Chapter V of the Finance Act, 1994.
2. The petitioner is a company providing 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” and informed the petitioner as follows: –
“During the scrutiny of the records it was observed that you have been charging and depositing service tax on remuneration income only in the case of invoices issued in the name of M/s. NHAI (National Highway Authority of India). As per the provision of sub-rule (i) of Rule 5 of the Service Tax (Determination of value) Rules, (Notification number 12/2006-ST, dated 19.04.2006) the service tax is liable to be charged on the gross value including reimbursable and out of pocket expenses like travelling, lodging and boarding etc.
As per records, it was found that you have short paid Service Tax amounting to Rs. 1,30,26,572/- for the financial year 2006-07. You are hereby directed to deposit the due service tax along with interest @ 13% under section 73 and 75 respectively of the Finance Act, 1994 within 15 days.
The matter may please be treated MOST URGENT/ TIME BOUND.”
3. In response to the above letter the petitioner provided monthwise details of professional income as well as reimbursable out of pocket expenses for the period mentioned in the letter. On 17.03.2008, a show-cause notice was issued by the Commissioner, Service Tax Commissionerate by which the petitioner was asked to show-cause why service tax of Rs. 3,55,80,738/- should not be recovered from it along with interest and penalty under Sections 76 to 78 of the Finance Act, 1994. The aforesaid figure of service tax was arrived at in the following manner in the show-cause notice.
