Service tax valuation excludes reimbursable expenses and brand-owner retention; later demand also failed on limitation.

In a contract bottling valuation dispute, reimbursable expenses were treated as outside the taxable value for service tax, and the amount retained by the brand owner was also excluded under the applicable circular; the first demand was therefore set aside. For the later period, the extended limitation could not be invoked because the department had already raised the same issue in an earlier notice, so the subsequent show cause notice was time-barred and the demand was quashed. The result was that both service tax demands failed.

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Issues: (i) Whether reimbursable expenses and the amount retained by the brand owner were includible in the taxable value for service tax in the first appeal. (ii) Whether the show cause notice for the later period was barred by limitation.

Issue (i): Whether reimbursable expenses and the amount retained by the brand owner were includible in the taxable value for service tax in the first appeal.

Analysis: The dispute concerned valuation of services in a contract bottling arrangement. The decision applied the settled principle that reimbursable expenses do not form part of the taxable value. The circular governing the arrangement was also relied upon to hold that the amount retained by the brand owner was not part of the assessable value.

Conclusion: The reimbursable expenses and the brand owner surplus were not includible in the taxable value, and the demand in the first appeal was set aside.

Issue (ii): Whether the show cause notice for the later period was barred by limitation.

Analysis: The later notice covered a subsequent period but was issued much later, while the same issue had already been raised in an earlier notice. On that basis, the extended period could not be sustained for the later demand.

Conclusion: The show cause notice for the later period was barred by limitation, and the demand was set aside.

Final Conclusion: Both appeals succeeded and the service tax demands were quashed.

Ratio Decidendi: Reimbursable expenses are excluded from taxable value, and the extended period of limitation cannot be invoked where the department was already aware of the same dispute from an earlier notice.

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