2026-VIL-608-GUJ-ST
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SERVICE TAX High Court Cases

Service Tax – Levy of service tax on losses (excess expenditure over contract revenue) – Rendering of consulting engineer services, erection, commissioning and installation services – Dept issued SCN demanding service tax on losses (excess expenditure over contract revenue) by invoking Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, read with Rule 2(c) thereof - Whether a SCN issued for the period prior to May 14, 2015, can validly seek to levy service tax on losses incurred by a service provider by relying upon Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, when the said Rule has been held to be ultra vires Section 67 of the Finance Act, 1994 and the statutory amendment to Section 67 to include reimbursable expenditure or cost is made effective only prospectively with effect from May 14, 2015 – HELD - The Supreme Court in Union of India vs. Intercontinental Consultants and Technocrats case has held that Section 67 mandates that service tax is to be charged only on the value of taxable services actually provided, which is the gross amount charged by the service provider for such service provided by him, and not on expenses or costs incurred by the service provider in rendering those services. The expression 'such' occurring in Section 67 assumes critical importance, and any amount calculated not for providing such taxable service cannot form part of that valuation - The Legislature itself recognized this limitation and accordingly amended Section 67 with effect from May 14, 2015, wherein Clause (a) dealing with 'consideration' was 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. This amendment is substantive in nature and not declaratory, and therefore operates prospectively only - Since the SCN pertains to the period prior to May 14, 2015, when no statutory authority existed to include expenses and losses in the valuation of taxable services, the reliance on Rule 5(1) is wholly misconceived and without legal foundation - The show cause notice is quashed and set aside. The petition is allowed
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