Reimbursable expenses and property renting under service tax: partial pre-deposit ordered, with balance demand stayed pending appeal

Reimbursable expenses recovered as actual expenditure were treated as not prima facie liable to service tax, relying on the view that Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 had been struck down as ultra vires. At the same time, letting out property with rent collected was held prima facie to fall within renting of immovable property services, leaving the detailed objections for final hearing. On the stay request, only a limited pre-deposit was ordered and recovery of the balance demand was stayed pending appeal, subject to compliance.

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Issues: (i) whether service tax demand could be sustained on reimbursable expenses recovered by the assessee; (ii) whether the assessee's activity of letting out property prima facie fell within renting of immovable property services; (iii) whether pre-deposit of the entire disputed demand should be waived and recovery stayed pending appeal.

Issue (i): whether service tax demand could be sustained on reimbursable expenses recovered by the assessee.

Analysis: The lower authorities had treated part of the demand as arising from amounts recovered towards actual expenses incurred for members. The order noted that such recoveries were reimbursement of actual expenses. It also relied on the decision striking down Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 as ultra vires, and held that demand based on reimbursable expenses could not be sustained at the stay stage.

Conclusion: The demand on reimbursable expenses was held to be not sustainable prima facie, in favour of the assessee.

Issue (ii): whether the assessee's activity of letting out property prima facie fell within renting of immovable property services.

Analysis: The order recorded that part of the property had been given on rent and rent was being collected. On that basis, it held that the activity would fall within renting of immovable property services, though the detailed objections were left for consideration at final hearing.

Conclusion: The activity of letting out property was held to be prima facie taxable under renting of immovable property services, in favour of Revenue.

Issue (iii): whether pre-deposit of the entire disputed demand should be waived and recovery stayed pending appeal.

Analysis: After considering the competing aspects, the order directed deposit of a limited amount and granted waiver of pre-deposit for the balance. Recovery of the balance was stayed subject to compliance with the deposit direction.

Conclusion: Partial waiver of pre-deposit was granted and recovery of the balance demand was stayed, in favour of the assessee.

Final Conclusion: The application was allowed only to the extent of requiring a limited pre-deposit, while the remaining disputed demand was protected by stay pending disposal of the appeal.

Ratio Decidendi: Reimbursement of actual expenses cannot be subjected to service tax where the valuation provision enabling such levy has been struck down as ultra vires, and a stay application may justify only a partial pre-deposit where the demand is otherwise prima facie sustainable on another part of the dispute.

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