Imported service tax valuation excludes reimbursed expenses, and later payment deeming fiction cannot apply retrospectively.

For imported services, service tax under reverse charge was confined to the actual consideration charged for the service. Reimbursed expenditure incurred in India for the foreign service provider's personnel was not additional consideration for the service received, so it was excluded from taxable value and Rule 5 of the Service Tax (Determination of Value) Rules, 2006 did not apply. The Tribunal also held that the deeming fiction treating debit or credit entries between associate enterprises as payment operated only from 10.05.2008, so amounts outstanding before that date could not be retrospectively treated as paid for reverse charge purposes. On both grounds, the demand was held unsustainable.

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Issues: (i) Whether reimbursed expenditure incurred in India by the recipient of imported services forms part of the taxable value for service tax under reverse charge. (ii) Whether the deeming provision treating debit or credit entries between associate enterprises as payment applies to amounts outstanding before 10.05.2008.

Issue (i): Whether reimbursed expenditure incurred in India by the recipient of imported services forms part of the taxable value for service tax under reverse charge.

Analysis: The appellant had already discharged service tax on the actual consideration for the imported IPR services. The additional amounts represented expenses incurred in connection with the foreign service provider's personnel visiting India and were later reimbursed. In such a situation, the recipient was not paying any extra consideration for the service received. Rule 5 of the Service Tax (Determination of Value) Rules, 2006 was held inapplicable, while Rule 7 required tax to be levied only on the actual consideration charged for services provided from outside India.

Conclusion: The reimbursement amounts were not includible in the taxable value, and service tax could not be demanded on that basis.

Issue (ii): Whether the deeming provision treating debit or credit entries between associate enterprises as payment applies to amounts outstanding before 10.05.2008.

Analysis: The Tribunal held that the amendment introducing the deeming fiction under Rule 6(1) of the Service Tax Rules, 1994 operated only from 10.05.2008. Amounts shown as outstanding before that date could not be retrospectively treated as paid for reverse charge purposes.

Conclusion: The outstanding amounts prior to 10.05.2008 were not liable to service tax on that deeming basis.

Final Conclusion: The demand was unsustainable on both issues, and the impugned order was set aside in full.

Ratio Decidendi: For imported services, service tax is chargeable only on the actual consideration charged, and a subsequent deeming fiction regarding payment between associate enterprises cannot be applied retrospectively to outstanding amounts predating its commencement.

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