D.N. Panda, Member (J)

1. None present for the Respondent. Revenue being aggrieved by the order passed by the learned Commissioner holding that the expenses reimbursed by the Respondent shall not from part gross value of taxable service came up in appeal before Tribunal.

2. Learned DR Shri Sumit Kumar argued that reimbursement of expenditure is a device to take away certain essential expenses from the purview of gross value of taxable service to avoid tax liability. The expenses which are essential for execution of the taxable service and no service can be rendered without such expenditure, that cannot be out of ambit of tax. He categorically submits that certain expenditure which are inventible (sic) (inevitable) to provide taxable service and that cannot be disintegrated nor separable but are inextricably connected with the service provided, Such expenditure contributes to the value of service which by no stretch of imagination can be ignored. Therefore, following the Division Bench decision in the case of Naresh Kumar & Co. Pvt. Lid. v. CST, Kolkata reported in : 2008 (11) S.T.R. 578 (Tri. - Kolkata), Shri Sumit Kumar prays to allow appeal of Revenue reversing the order passed by learned Commissioner (Appeals). He specifically points out that the ratio laid down in Naresh Kumars case in para 6.10 of the order is to the effect that if an expenditure is indispensable and inevitably incurred to provide taxable service, such cost should essentially form part of cost of service and value of taxable service is not realised by provider of service without such expenditure being recovered from recipient of taxable service. Therefore mode of payment of such expenditure by what ever name called by parties is not material for Revenue. So also expenditure incurred either incidental or ancillary to perform an act, shall essentially make value addition to the service. Therefore, the first Appellate order calls for interference to reverse the same.

3. With the assistance of Revenue and in absence of the Respondent, we thoroughly looked into the appellate order, which is subject matter of appeal before Tribunal. Learned Commissioner (Appeals) in para 4 of the order has brought out the elements of cost which were sought to be included to the value of service provided. Those were charges for infrastructure i.e. godown rent, depreciation, pest control, fire extinguisher, internet, house keeping and staff welfare, telephone expenses, courier expenses, tax, electricity including generator expenses, samples and promotion materials handling charges, commission paid to bank, renewal of licences, stationery remuneration paid to staff and loading and unloading expenses were subject matter of consideration before him. Learned Commissioner following the decision of Single Member Bench made on 8-12-2006 in the case of S. jayashree v. CCE, Mangalore reported in 2007 (6) S.T.R. 389 (Tri. - Bang.) and ignoring Division Bench decision made on 29-5-2009 in the case of Naresh Kumar & Co. Pvt. Ltd. v. CST, Kolkata reported in : 2008 (11) S.T.R. 578 (Tri. - Kolkata) allowed the relief to the Respondent holding in para 10 of the order that the expenses like transportation charges, loading and unloading charges, rent of godown and clerk salary are not includible in the taxable value of service of C&F Agent and service tax is leviable only on remuneration for services provided as C&F Agent. Action of learned Appellate Authority below de-

4. The Apex Court in the case of All India Federation of Tax Practitioners v. Union of India reported in 2007 TIOL 149 : : 2007 (7) S.T.R. 625 held that service tax is destination based consumption tax and that may be either performance based or property based. Economic services are provided for valuable consideration without being rendered charitably. No service which is uneconomical or commercially unviable are provided in the commercial world. Various elements of cost contribute to the provision of economic services. Expenses which are indispensable and inevitably incurred to make the economic service performable that contribute to the gross value of service. The provider of economic service recovers his entire cost involved in providing such service in the best possible manner that may be viable to him and the service recipient.

5. The basic principle that service tax being destination based consumption tax, till the service reaches its destination, that contributes to the proposition that all expenses incurred till that point and time become essential consideration of cost of service. Agreement of parties in respect of modality of payment of valuable consideration towards service provided does not matter for Revenue. In whatever manner the recipient and provider of taxable service arrange their affairs for their benefit or mutuality to deal with consideration that is also immaterial to Revenue. Service Valuation Rule of 1994 (sic) contributes to the above fiscal philosophy and the destination based consumption tax submit for taxation on the gross value of taxable service which is measure of taxation. The gross value takes into its fold entire cost of service enabling that to be performable. Therefore, by no stretch of imagination neither the arrangements of the parties nor their mutuality or nomenclature or format of their agreement and mode of discharge of consideration shall prevail on the law relating to service tax. Legislature accordingly intend that the gross value of the service shall be the measure of value for taxation whether paid as consideration directly or by reimbursement of expenses relating to providing of taxable service.

6. The philosophy of service tax law has been described by Apex Court in paras 6, 7, 8 of All India Federation of Tax Practitioners v. Union of India reported in : 2007 TIOL 149: 2007 (7) S.T.R. 625 in following terms:

6. At this stage, we may refer to the concept of "Value Added Tax" (VAT), which is a general tax that applies, in principle, to all commercial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by the consumer.

7. In the light of what is stated above, it is clear that Service Tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value added tax.

8. As stated above, service tax is VAT. Just as excise duty is a tax on value addition on goods, service tax is on value addition by rendition of services. Therefore, for our understanding, broadly "services" fall into two categories, namely, property based services and performance based services. Property based services cover service providers such as architects, interior designers, real estate agents, construction services, mandapwalas etc. Performance based services are services provided by service providers like stock-brokers, practicing chartered accountants, practicing cost accountants, security agencies, tour operators, event managers, travel agents etc.

7. The nature and character of service tax has also been explained by Apex Court in para 22 of the judgment Association of Leasing & Financial Service Companies v. Union of India and Ors. reported in : 2010 TIOL 87 : 2010 (20) S.T.R. 417 .

22. In All India Federation of Tax Practitioners case (supra), this Court explained the concept of service tax and held that service tax is a Value Added Tax (VAT for short) which in turn is a destination based consumption tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. That, service tax is an economic concept based on the principle of equivalence in a sense that consumption of goods and consumption of service are similar as they both satisfy human needs. Today with the technological advancement there is a very thin line which divides a "sale" from "service". That, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. That service tax is, therefore, a tax on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity undertaken by a chartered accountant or a broker is an activity undertaken by him based on his performance and skill. This is from the point of view of the professional. However, from the point of view of his client, the chartered accountant/broker is his service provider. The value addition comes in on account of the activity undertaken by the professional like tax planning, advising, consultation etc. It gives value addition to the goods manufactured or produced or sold. Thus, service tax is imposed every time service is rendered to the customer/client. This is clear from the provisions of Section 65(105)(zm) of the Finance Act, 1994 (as amended). Thus, the taxable event is each exercise/activity undertaken by the service provider and each time service tax gets attracted. The same view is reiterated broadly in the earlier judgment of this Court in Godfrey Phillips India Ltd. v. State of U.P. (: 2005 (2) SCC 515 : 2005 TIOL 10 SC LT CB, in which a Constitution Bench observed that in the classical sense a tax is composed of two elements: the person, thing or activity on which tax is imposed. Thus, every tax may be levied on an object or on the event of taxation. Service tax is, thus, a tax on activity whereas sales tax is a tax on sale of a thing or goods. Law as it stood before the Constitution (Forty-Sixth Amendment) Act, 1982:

8. When logic of service tax incidence calls for taxation of service on the gross value of taxable service and there is no specific deduction allowed under statutory provisions to dimish the value of taxable consideration of taxable service, in absence of such provision in law, learned Commissioner (Appeals) committed error of law to exclude the expenses reimbursed by the service recipient to service provider from the purview of taxation. We are fully in agreement with learned DR to follow the decision made by the Division Bench of Tribunal in the case of Naresh Kumar & Co. Pvt. Ltd. v. CST, Kolkata (supra). Our view aforesaid is fortified by the ratio laid down in para 6.10 of the said judgment to allow the appeal of revenue. Accordingly, we allow the appeal of revenue setting aside the first Appellate order and restoring the order-in-original.

(Dictated and pronounced in open court)