Whether Rule 3 of Service Tax (Determination of Valuation Rules) 2006 ("Valuation Rules") is attracted, when monetary consideration for service is specified in the agreement and department has alleged suppression of value without following procedure in Rule 4 of Valuation Rules?

Core  Minerals vs. Commissioner     of Service  Tax,  Chennai [2014] 48   taxmann.com     39 (Madras)

 

 

 

Facts of case:

The appellant had entered into two agreements with the persons holding mining licenses, one for providing mining services and the other for purchasing the goods (i.e. extracted minerals) exclusively by the appellant from the license holders. Department  resorting to Rule 3(b) of the valuation  rules included certain expenses from the Profit and  Loss A/c  such  as "Over  Burden  Removal;  Raising and Stacking  Charges;  Hire Charges;  Mining Expenses, Screening  Charges;  Sampling  and Analysis;  Power and Fuel; Wages;  Maintenance,  etc." in the value of taxable services. Appellant contended before the Tribunal but did not succeed and appealed before the High Court.

 

HELD:

When there are two agreements independent of one another, and a specific amount is charged by the service provider under the agreement,  that agreement  has to be tested on its own merits in terms of section 67(1 )(i) of the Finance Act, 1994 and invoking Rule 3(b) of the Valuation Rules, may not be justified.  Further, Rule 3(b) comes into play  only  when  Rule  3(a}  of the  Valuation  Rules  fails, and prima  facie, there is no cogent reason shown in 'the adjudication order as to how Rule 3 of the Valuation Rules is applicable  when there is a specific  agreement.  In this context, Tribunal observed that, no provision under the Act or the Valuation Rules, 2006 calls upon the assessee to prove the cost of services in any manner and that the Revenue has also not followed the procedure prescribed under Rule 4 of the Valuation Rules. It reduced the amount of pre-deposit setting aside the order of the Tribunal.