Service tax classification turns on contract substance, and reimbursable expenses cannot be added to taxable value.

Service tax classification depends on the real substance of the contract read as a whole, not on isolated references to personnel deployment or site-based billing. Where agreements and work orders show software development, support, testing and maintenance, the activity is not treated as manpower supply merely because staff were placed at customer premises. The article also reiterates that information technology services entered the taxable net only from 16.05.2008, so the earlier period could not be taxed on that basis. Reimbursable travel, conveyance, meal and visa s are not part of the service consideration and cannot be added to taxable value under Section 67 by Rule 5.

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Issues: (i) Whether the services rendered by the appellant were classifiable as manpower supply service or were essentially software development and information technology services outside the taxable net for the relevant period; (ii) Whether reimbursable expenses such as travel, conveyance, meal and visa expenses were includible in the taxable value of services.

Issue (i): Whether the services rendered by the appellant were classifiable as manpower supply service or were essentially software development and information technology services outside the taxable net for the relevant period.

Analysis: The agreements and work orders showed that the appellant was engaged for software support, development, testing, maintenance and related technical deliverables, and the contractual documents had to be read as a whole to discern the real intention of the parties. The mere fact that personnel were deployed at customer sites or billing was linked to manpower deployment did not make the activity manpower supply, when the substance of the arrangement was delivery of software and IT-related services. The Tribunal also noted that information technology services were brought within the taxable framework only with effect from 16.05.2008, and the earlier period could not be taxed by reclassifying the activity as manpower supply on the facts found.

Conclusion: The activity was not taxable as manpower supply service for the disputed period and the classification adopted by the department was unsustainable.

Issue (ii): Whether reimbursable expenses such as travel, conveyance, meal and visa expenses were includible in the taxable value of services.

Analysis: The amounts in question were reimbursements under the contractual arrangements and were not part of the consideration for the service itself. In view of the settled position that the value of taxable services under Section 67 cannot be enlarged by Rule 5 to include such reimbursable expenditure, the departmental inclusion of these amounts in the assessable value could not stand.

Conclusion: Reimbursable expenses were not includible in the taxable value.

Final Conclusion: The demand and consequential penalty were set aside, and the appellant obtained full relief on the core tax disputes decided in the appeal.

Ratio Decidendi: For service tax classification, the true nature of the contract must be gathered from the agreement as a whole, and reimbursable expenses cannot be added to the taxable value beyond the charging provision.

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