Service tax valuation excludes reimbursed third-party expenses and cannot rest on grounds beyond the show cause notice.

Service tax valuation under Section 67 of the Finance Act, 1994 is confined to the consideration for the taxable service actually rendered, so reimbursed out-of-pocket expenses paid to third parties are not includible in the assessable value unless shown to be disguised service consideration. Rule 5 of the Service Tax (Determination of Value) Rules, 2005 cannot enlarge the statutory charging provision to tax reimbursements contrary to the Act. An adjudication must also stay within the foundation laid in the show cause notice; where the order relies on grounds beyond the notice, it is unsustainable to that extent.

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Issues: (i) Whether reimbursed expenses paid to third parties could be included in the taxable value for service tax; (ii) Whether the adjudication could rely on grounds going beyond the show cause notice.

Issue (i): Whether reimbursed expenses paid to third parties could be included in the taxable value for service tax.

Analysis: The valuation of taxable services under Section 67 of the Finance Act, 1994 is confined to the consideration for the service actually rendered. Reimbursed out-of-pocket expenses, where not shown to be a disguised consideration for the service, do not form part of the gross amount charged. Rule 5 of the Service Tax (Determination of Value) Rules, 2005 cannot expand the charging provision and cannot include reimbursements in the taxable value contrary to the statute.

Conclusion: Reimbursed expenses were not includible in the assessable value, and the demand on that count could not be sustained.

Issue (ii): Whether the adjudication could rely on grounds going beyond the show cause notice.

Analysis: The show cause notice proceeded on inclusion of reimbursable expenses, whereas the impugned order treated those amounts as consideration for the service and also relied on reasoning that was not part of the notice. An adjudication cannot travel beyond the foundation laid in the notice.

Conclusion: The impugned order was unsustainable to the extent it travelled beyond the show cause notice.

Final Conclusion: The appeal succeeded and the demand was set aside with consequential relief in accordance with law.

Ratio Decidendi: For service tax valuation, only the consideration for the taxable service is chargeable, and reimbursed expenses paid to third parties cannot be included unless they are proved to be part of the service consideration; an adjudicating order cannot sustain demand on a basis beyond the show cause notice.

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