Rule 5 of Service Tax Valuation Rules held ultra vires, reimbursable expenses excluded from pre-2015 service tax valuation

CESTAT Hyderabad allowed the appeal regarding inclusion of reimbursable expenses in service tax valuation. The tribunal relied on SC's decision in Union of India v. Intercontinental Consultants where Rule 5 of Service Tax (Determination of Value) Rules, 2006 was held ultra vires Section 66-67 of Finance Act 1994. SC observed that only after 2015 amendment to Finance Act's definition of consideration could reimbursable expenditure be included in taxable service valuation. Since appellants' expenses were reimbursed on actual basis through debit notes, not invoices, these constituted reimbursable expenses that cannot be included in gross value pre-2015 amendment. Demand was unsustainable and Commissioner (Appeals) order was set aside.

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Issues involved:
The core issue for determination is whether the amount received by the Appellants from their clients in respect of certain expenses on an actual basis would be a reimbursable amount or not, and if reimbursable, whether it needs to be included in the gross value charged for the purpose of levy of service tax.

Summary:
The Appellant, a service provider of Company Secretary services, was issued a Show Cause Notice demanding service tax for expenses not shown in their returns. The Adjudicating Authority concluded that such expenses should form part of the taxable value. On appeal, the Commissioner upheld the demand, stating the Appellant must pay service tax on the expenses claimed as reimbursable. The Appellant challenged this decision before the Tribunal, arguing that the issue of charging service tax under Rule 5 was no longer valid post a specific judgment. The Appellant contended that the expenses were reimbursed by clients and separately taxed. The Tribunal, after considering various case laws and the amended definition of "consideration," held that the demand cannot be sustained, setting aside the Commissioner's order and allowing the appeal with consequential benefits.

Judgment Details by Issue:
- The Adjudicating Authority concluded that expenses incurred by the Appellants should be part of the taxable value, which was upheld by the Commissioner.
- The Appellant challenged the decision based on the judgment in UOI Vs Intercontinental Consultants and Technocrats Pvt Ltd., arguing that the expenses were reimbursed by clients and separately taxed.
- The Tribunal considered various case laws and the amended definition of "consideration" to determine that the demand cannot be sustained, setting aside the Commissioner's order and allowing the appeal with consequential benefits.

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