Service tax valuation excludes reimbursements only with proof of pure agent arrangement; demand and penalties sustained on the facts.

Amounts recovered for uniforms, bonus, provident fund, overtime allowance, ESIC, insurance and similar items were held includible in the taxable value of security agency service because no contractual or billing evidence established a reimbursement structure or pure agent arrangement. The article further notes that, where the assessee was registered, collected service tax, failed to deposit it for a substantial period and did not file returns for two years, objections based on natural justice and financial hardship were rejected, and the extended period and penalties were upheld. The final result was that the appeal failed and the demand, limitation and penalties were sustained.

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Issues: (i) Whether amounts recovered towards uniforms, bonus, provident fund, overtime allowance, ESIC, insurance and similar reimbursements were excludible from the taxable value of security agency service. (ii) Whether the demand and penalties could be sustained despite the objections based on natural justice, limitation and financial hardship.

Issue (i): Whether amounts recovered towards uniforms, bonus, provident fund, overtime allowance, ESIC, insurance and similar reimbursements were excludible from the taxable value of security agency service.

Analysis: The taxable value under Section 67 of the Finance Act, 1994 is the gross amount charged for the service. The appellant did not produce any contractual arrangement or contemporaneous billing material showing a pre-agreed reimbursement structure or a pure agent relationship. The claim for exclusion of expenditure was therefore unsupported on facts. The reasoning in the cited valuation decisions did not assist the appellant on the actual record.

Conclusion: The disputed amounts were not established as excludible reimbursements and were liable to be included in the taxable value.

Issue (ii): Whether the demand and penalties could be sustained despite the objections based on natural justice, limitation and financial hardship.

Analysis: The record showed that the appellant was registered, had collected service tax from clients, did not deposit it for a substantial period, and did not file returns for two years. The relied upon material was held to be available from the appellant's own records and statements, and a personal hearing had been granted. On those facts, the plea of violation of natural justice was rejected. The same conduct also justified invocation of the extended period and the imposition of penalties.

Conclusion: The demand, extended limitation and penalties were sustained against the appellant.

Final Conclusion: The appeal failed in its entirety, and the impugned order confirming the tax demand and consequential penalties was upheld.

Ratio Decidendi: For service tax valuation, only amounts shown to be excludible under a legally and factually established reimbursement or pure agent arrangement can be excluded from the gross amount charged; where the assessee collects tax, retains the consideration and fails to file returns, the demand, extended limitation and penalties are sustainable.

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