Service tax valuation cannot include reimbursable expenses absent statutory authority; Rule 5 was ultra vires for earlier periods.

Reimbursable expenses could not be included in the value of taxable services under Rule 5 of the Service Tax (Determination of Value) Rules, 2006 because valuation under Sections 66 and 67 of the Finance Act, 1994 is confined to the consideration for the service actually rendered. The Supreme Court ruling in Intercontinental Consultants confirmed that subordinate legislation cannot enlarge the tax base beyond the parent statute, and Rule 5 was therefore ultra vires to that extent. The 2015 amendment to Section 67 was treated as a prospective substantive change, not a retrospective validation of earlier levies. The earlier demand based on such expenses was set aside and remitted for reconsideration in light of the binding precedent.

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Issues: Whether service tax could be levied on reimbursable or so-called non-taxable expenses collected by the service provider under Rule 5 of the Service Tax (Determination of Value) Rules, 2006, and whether the impugned orders directing the appellant to pursue statutory appeals could stand in view of the binding ruling that Rule 5 was ultra vires the parent enactment.

Analysis: The binding Supreme Court ruling in the Intercontinental Consultants matter had already affirmed that, under Section 66 and Section 67 of the Finance Act, 1994, tax is chargeable only on the value of taxable services actually rendered and that the valuation cannot be enlarged by subordinate legislation so as to include reimbursable expenses or other amounts not forming consideration for such service. Rule 5, to the extent it brought reimbursable expenditure into the measure of tax, travelled beyond the mandate of Section 67 and could not prevail over the statute. The subsequent amendment to Section 67 by the Finance Act, 2015 was treated as a substantive change operating prospectively and not as a retrospective validation for prior periods.

Conclusion: The demand based on inclusion of reimbursable expenses could not be sustained for the earlier period, and the orders under challenge were set aside with a remand for fresh consideration by the authority concerned in the light of the binding Supreme Court decision.

Final Conclusion: The writ appeals succeeded to the extent that the impugned orders were quashed and the matters were sent back for reconsideration on merits in accordance with law and the controlling Supreme Court precedent.

Ratio Decidendi: A delegated rule cannot expand the tax base beyond the parent statute, and reimbursable expenses are not includible in the value of taxable services unless the statute itself expressly so provides.

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