Valuation of Service – Rules notified – is it a Pandora’s Box of litigation? Rail fare collected by air travel agent exempted!!!!!!!

By Vijay Kumar

It is finally here. Anything to do with Central Excise must have a valuation angle and consequent eternal litigation. For 12 years Service Tax managed without any litigation about valuation and perhaps the peace is going to end. It is doubtful whether hope is still locked up in the Pandora’s Box or released.

Highlights of the valuation Rules:-

1. Similar service – dangerous concept- Where the consideration for service is not wholly or partly in cash, the consideration for similar service will be the basis. This is not as simple as it sounds, if we look at the disputes in Customs and Central Excise on this issue.

2. If similar service assessment is not possible, the value in money terms has to be determined but this shall not be less than the cost of service. Should we bring in the Chartered Accountant?

3. The Central Excise officer can after due notice determine the value.

4. Value includes all costs and expenditure, with certain costs excluded.

5. Value includes

a. the commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker;

b. the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit;

c. the amount of premium charged by the insurer from the policy holder;

d. the commission received by the air travel agent from the airline;

e. the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;

f. the reimbursement received by the authorised service station, from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer;

g. the commission or any amount received by the rail travel agent from the Railways or the customer;

h. the remuneration or commission, by whatever name called, paid to such agent by the client engaging such agent for the services provided by a clearing and forwarding agent to a client rendering services of clearing and forwarding operations in any manner; and

i. the commission, fee or any other sum, by whatever name called, paid to such agent by the insurer appointing such agent in relation to insurance auxiliary services provided by an insurance agent.

6. Value does not include

a. initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit;

b. the airfare collected by air travel agent in respect of service provided by him;

c. The rail fare collected by air travel agent in respect of service provided by him; and (Does the air travel agent collect rail fare? Board should know or they should have asked the Railway Board.)

d. Interest on loans.

Notification No. 12/2006-Service Tax dated 19th April, 2006