Tax Tribunal: Reimbursed Expenses Subject to Service Tax

The Tribunal held that out of pocket expenses reimbursed by clients are subject to service tax as the appellant charges a gross amount for taxable services, making the gross amount chargeable to service tax under Section 67 of the Finance Act. The appellant was required to pre-deposit the service tax amount of Rs. 2,41,279 within four weeks, with the condition of pre-deposit of interest and penalties waived. Recovery of interest and penalties was stayed during the appeal process.

---

---

Issues:
1. Whether out of pocket expenses reimbursed by clients are subject to service tax.
2. Interpretation of Section 67 of the Finance Act regarding the chargeability of service tax on the gross amount received for providing taxable services.

Analysis:
1. The appellant applied for a waiver of pre-deposit of service tax, interest, and penalties amounting to Rs. 2,41,279, contending that out of pocket expenses reimbursed by clients are not subject to service tax as per the Service Tax (Determination of Valuation) Rules, 2006. The appellant argued that since the demand predates the Rules, the amounts in question are not liable for service tax. However, the Revenue argued that the appellant charges a gross amount from clients for taxable services, making the gross amount chargeable to service tax. The Tribunal noted that the service tax is levied on the gross amount received for providing taxable services as per Section 67 of the Finance Act. Since the appellant did not dispute the taxability of the service provided and received a gross amount for the service rendered, the Tribunal found no grounds for waiving the pre-deposit of the service tax amount.

2. The Tribunal held that the appellant must pre-deposit the amount of Rs. 2,41,279 within four weeks and report compliance before the Assistant Registrar. Upon depositing the specified amount, the condition of pre-deposit of interest and penalties was waived, and the recovery of the same was stayed during the pendency of the appeal. The decision was pronounced and dictated in open court by the Vice-President of the Tribunal, emphasizing the application of Section 67 of the Finance Act in determining the chargeability of service tax on the gross amount received for providing taxable services.

---