Service tax valuation excludes reimbursable transaction charges paid to a third party when the valuation rule is invalid.

Transaction charges collected and paid over to the NSE were treated as reimbursable expenses, not brokerage retained by the intermediary, and were therefore outside the taxable value for service tax. The levy could not be sustained because the demand rested on Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, which had already been held ultra vires. Amounts merely recovered as third-party reimbursements cannot be included in service tax valuation when the enabling valuation rule is invalid.

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Issues: Whether transaction charges collected by the appellant and paid to the NSE were liable to service tax.

Analysis: The demand was founded on Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006. That provision had already been held ultra vires. The transaction charges were paid to the NSE and were not brokerage retained by the appellant, and were treated as reimbursable expenses not forming part of the taxable levy.

Conclusion: The transaction charges were not subject to levy of service tax, and the demand could not survive.

Ratio Decidendi: Amounts collected merely as reimbursable expenses and paid over to a third party cannot be included in the taxable value for service tax when the valuation rule enabling such inclusion is invalid.

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