Service tax valuation includes security-service reimbursements unless a documented pure agent or pre-agreed reimbursement arrangement establishes their exclusion.
Security agency service valuation under Section 67 includes the gross amount charged unless expenses for uniforms, bonus, provident fund, overtime, ESIC, insurance and similar items are supported by a pre-agreed reimbursement structure or a pure agent arrangement. Contractual and contemporaneous billing evidence is necessary to establish exclusion. Where a registered provider collects service tax, fails to deposit it, and does not file returns, those circumstances support extended limitation and penalties. Natural justice objections may fail where relied-on material is available in the provider's own records and statements and a personal hearing has been granted. Financial hardship does not displace established tax liability or consequential penalties.
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.