Appeal dismissed: valuation under Section 67 limited to gross consideration; Rule 5 exceeded mandate; reimbursables excluded pre-2015.

The SC dismissed the appeal, upholding the HC's view that valuation for service tax is limited to the gross amount charged as consideration for the taxable service and that Rule 5 exceeded the mandate of Section 67. Reimbursable expenses are not includible in valuation under Section 67 (pre-amendment and as amended May 1, 2006). Only from May 14, 2015, following legislative amendment, did reimbursable expenditure become expressly includible in valuation. The subordinate rule could not lawfully broaden valuation beyond subsection (1) of Section 67.

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Issues Involved:
1. Inclusion of reimbursable expenses in the valuation of taxable services under Rule 5 of the Service Tax (Determination of Value) Rules, 2006.
2. Validity of Rule 5 in light of Section 67 of the Finance Act, 1994.
3. Impact of amendments to Section 67 by the Finance Act, 2015.
4. Inclusion of free supplies (diesel and explosives) in the valuation of taxable services for "Site Formation and Clearance Service."

Issue-wise Detailed Analysis:

1. Inclusion of Reimbursable Expenses in the Valuation of Taxable Services:
The core issue was whether reimbursable expenses incurred by service providers, such as transportation, lodging, and other out-of-pocket expenses, should be included in the gross amount charged for the purpose of calculating service tax. The respondents argued that these expenses should not be included as they are not part of the service rendered but are merely reimbursed by the clients.

2. Validity of Rule 5 in Light of Section 67 of the Finance Act, 1994:
The High Court of Delhi had declared Rule 5 of the Service Tax (Determination of Value) Rules, 2006, ultra vires the provisions of Sections 66 and 67 of the Finance Act, 1994. The Supreme Court upheld this decision, stating that Rule 5 went beyond the mandate of Section 67. The Court emphasized that the valuation of taxable services should be limited to the gross amount charged for providing "such" services and should not include reimbursable expenses.

3. Impact of Amendments to Section 67 by the Finance Act, 2015:
The Finance Act, 2015, amended Section 67 to include reimbursable expenses in the valuation of taxable services. The Supreme Court noted that this amendment was substantive and could not be applied retrospectively. Therefore, for the period before May 14, 2015, reimbursable expenses could not be included in the valuation of taxable services.

4. Inclusion of Free Supplies (Diesel and Explosives) in the Valuation of Taxable Services for "Site Formation and Clearance Service":
The Court also addressed whether the value of free supplies like diesel and explosives provided by the service recipient should be included in the valuation of taxable services. The Court held that such free supplies could not be considered part of the "gross amount charged" as they were not part of the consideration for the service rendered.

Summary of Judgments:

Consulting Engineering Services:
The Court examined the case of M/s. Intercontinental Consultants and Technocrats Pvt. Ltd., which provided consulting engineering services and received reimbursements for expenses like air travel and hotel stays. The Court upheld the High Court's decision that these reimbursable expenses should not be included in the valuation of taxable services.

Share Transfer Agency Services:
In cases involving share transfer agency services, the Court ruled that reimbursable expenses such as postage and stationery charges should not be included in the valuation of taxable services.

Custom House Agent Services:
For custom house agent services, the Court held that reimbursable expenses like customs examination charges and documentation charges should not be included in the valuation of taxable services.

Site Formation and Clearance Services:
The Court ruled that the value of free supplies of diesel and explosives provided by the service recipient should not be included in the valuation of taxable services for "Site Formation and Clearance Service."

Transfer Petitions:
The Court allowed the transfer petitions and transferred the writ petitions pending before the High Court of Madras to the Supreme Court. These transferred writ petitions were disposed of in terms of the judgment rendered in Civil Appeal No. 2013 of 2014 and other connected matters.

Conclusion:
The Supreme Court upheld the High Court's decision that Rule 5 of the Service Tax (Determination of Value) Rules, 2006, was ultra vires Sections 66 and 67 of the Finance Act, 1994. The Court clarified that reimbursable expenses should not be included in the valuation of taxable services for periods before the amendment to Section 67 by the Finance Act, 2015. The Court also ruled that free supplies provided by the service recipient should not be included in the valuation of taxable services.

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