In a recent ruling, the Delhi High Court ruled that Rule 5 (1) of the Service Tax (Determination of Value) Rules, 2006 which provides for inclusion of the expenditure or costs incurred by the service provider in the course of providing the taxable service in the value for the purpose of charging service tax is ultra vires Sections 66 and 67 of Chapter V of the Finance Act, 1994, and travels much beyond the scope of those Sections.
The Court said “The expenditure or costs 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.”
“Apart from travelling beyond the scope and mandate of the Section 67, the Rule may also result in double taxation”, the Court said. “It is true that there can be double taxation, but it is equally true that it should be clearly provided for and intended; at any rate, double taxation cannot be enforced by implicatio”, the Court further said.
“This is a clear mandate that the value of taxable services for charging service tax has to be in consonance with Section 66 which levies a tax only on the taxable service and nothing else”, the Court added.