Service tax valuation excludes reimbursable expenses before the Section 67 amendment takes effect prospectively

Reimbursable expenditure was treated as outside the taxable value for service tax under Manpower Recruitment or Supply Agency Service for the period before the amendment to Section 67 of the Finance Act, 1994. The amendment enlarging the valuation base was held to be a substantive change operating prospectively from 14 May 2015, so pre-amendment reimbursements could not be added to gross value for tax. As a result, the demand on reimbursable amounts was not sustainable and the impugned orders were set aside.

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Issues: Whether reimbursable amounts could be included in the gross value for charging service tax for the period prior to the amendment to Section 67 of the Finance Act, 1994.

Analysis: The dispute concerned valuation of taxable services under the category of Manpower Recruitment or Supply Agency Service. The Tribunal applied the settled principle that reimbursable expenditure is not part of the taxable value for the period before the legislative amendment made effective from 14 May 2015. The amendment to Section 67 of the Finance Act, 1994 was treated as a substantive change operating prospectively, and the pre-amendment period could not be subjected to service tax on reimbursable amounts.

Conclusion: Reimbursable amounts were not includible in the taxable value for the disputed period, and the demand could not be sustained against the assessee.

Final Conclusion: The impugned orders were set aside and the appeals succeeded with consequential relief in law.

Ratio Decidendi: An amendment expanding the taxable value of service tax to include reimbursable expenditure operates prospectively and cannot be applied to periods prior to its commencement.

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