Reimbursable expenses in clearing and forwarding services were excluded from service tax value before the 14.05.2015 amendment.

For clearing and forwarding services, reimbursable expenses paid by the principal were not includable in the taxable value for the pre-14.05.2015 period. Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, read with Section 67 of the Finance Act, 1994, could not validly bring actual reimbursement into the tax base because the rule had been declared ultra vires. On the admitted facts, the amounts were reimbursement of actual expenses and not separate consideration for the service, so the service tax demand based on those reimbursements could not survive before the statutory amendment.

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Issues: Whether reimbursable expenses received by a clearing and forwarding agent from the principal were includable in the taxable value of service tax under Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 read with Section 67 of the Finance Act, 1994 for the period prior to 14.05.2015.

Analysis: The dispute concerned amounts reimbursed by the principal towards expenses incurred by the service provider in the course of providing clearing and forwarding services. The demand was founded on Rule 5(1), which sought to include expenditure or cost incurred by the service provider in the taxable value. The rule had already been declared ultra vires and the legal position had been settled that reimbursable expenses, in the absence of a valid charging basis, could not be subjected to service tax for the period before the statutory amendment effective from 14.05.2015. On the admitted facts, the amounts were reimbursement of actual expenses and not independent consideration for the service.

Conclusion: Reimbursable expenses were not liable to be included in the taxable value for the relevant pre-amendment period, and the demand based on Rule 5(1) could not survive.

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