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The CESTAT allowed the appeal, holding that reimbursements and expenses incurred by the service provider for goods, software and ancillary services procured and charged separately to the associated enterprise do not constitute taxable "gross amount charged" or consideration for the taxable service. Under the parties' Master Service Agreement, the recipient was to procure material/ERP and reimburse allocated costs; such reimbursements-accounted as sundry creditors and adjusted against receivables-were not additional consideration and were not paid as service charges. Consequently those amounts could not be included in service tax invoices nor added to the taxable value under Rule 4A of the Service Tax Rules, 1994, and the demands were unsustainable.
The CESTAT allowed the appeal, holding that reimbursements and expenses incurred by the service provider for goods, software and ancillary services procured and charged separately to the associated enterprise do not constitute taxable "gross amount charged" or consideration for the taxable service. Under the parties' Master Service Agreement, the recipient was to procure material/ERP and reimburse allocated costs; such reimbursements-accounted as sundry creditors and adjusted against receivables-were not additional consideration and were not paid as service charges. Consequently those amounts could not be included in service tax invoices nor added to the taxable value under Rule 4A of the Service Tax Rules, 1994, and the demands were unsustainable.
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