Service tax valuation excludes reimbursable expenses before the 2015 amendment, as Rule 5 could not enlarge the statutory tax base.

Reimbursable expenses could not be added to the taxable value of service tax by invoking Rule 5 of the Service Tax (Determination of Value) Rules, 2006 for the period before the 14 May 2015 amendment. The valuation scheme in Sections 66 and 67 of the Finance Act, 1994 taxes the value of the service actually rendered and the gross amount charged for that service, and Rule 5 could not expand that base beyond the parent statute. The 2015 amendment was treated as a substantive change with prospective effect, so it did not apply to the disputed period.

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Issues: Whether reimbursable expenses could be included in the value of taxable services for service tax by invoking Rule 5 of the Service Tax (Determination of Value) Rules, 2006 for the period prior to the 2015 amendment.

Analysis: The valuation provisions in Section 66 and Section 67 of the Finance Act, 1994 require service tax to be levied on the value of the service actually rendered and the gross amount charged for such service. Rule 5, to the extent it sought to add reimbursable expenses to the taxable value, travelled beyond the mandate of the parent statute. The amendment made with effect from 14 May 2015 was treated as a substantive change and, therefore, prospective. For the disputed period, reimbursable expenses could not be brought into the tax base under Rule 5.

Conclusion: The inclusion of reimbursable expenses in the taxable value was unsustainable for the disputed period, and the demand based on Rule 5 failed.

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