2023 (12) TMI 436 - AT - Service Tax

Valuation of service - requirement to include amount towards expenses like conveyance, courier charges, miscellaneous expenses, stationery charges and travelling expenses etc. in the assessable value or not - invocation of provisions of the Rule 5 of the Service Tax (Determination of Value) Rules, 2006 read with Section 67 of Chapter 5 of Finance Act 1994, as also the Rule 5(2) of Service Tax (Determination of Value) Rules, 2006 - recovery of interst and penalty. HELD THAT - The issue regarding leviability of service tax on the reimbursed amount came up before Delhi High Court in the Writ Petition filed by UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT , where after going through the Statutory Provisions under the Finance Act 1994 and Rules made there under, the Hon ble Court declared Rule 5 to be ultra vires of the provision of Section 66 67 of Finance Act 1994. The Hon ble Supreme Court in the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT examined the correctness of the judgment of the Delhi High Court upheld the decision of Hon ble Delhi High Court. The Hon ble Supreme Court also took note in para 29, that Legislature amended Finance Act in 2015, with effect from 14.05.2015, amending the definition of consideration to include reimbursable expenditure / cost incurred by the service provider and therefore observed that with effect from 14.05.2015, by virtue of provisions of Section 67 itself, such reimbursable cost or expenditure would also form part of the valuation of taxable service for charging service tax and also held this amendment has to be prospective in nature. Hon ble Supreme Court finally dismissed the appeal filed by the Union of India, thereby upholding the decision of the Delhi High Court which had struck Rule 5 as unconstitutional as well as ultra vires. There is nothing on record in the Show Cause Notice to the effect that the expenses incurred by the Appellants were not being reimbursed on the actual basis by the client. On the contrary, the Appellants have submitted that these were being reimbursed by the clients on the actual basis for which they were issuing debit notes, and not invoice. Therefore, the nature of the expenses / cost is nothing but reimbursable expense / cost. The provision under which such expense / costs were proposed to be included i.e. Rule 5 has been held to be ultra virus, and as such no longer applicable and therefore such reimbursable expenses cannot be included in the gross value charged even by invoking Section 67, keeping in view of the judgment cited supra. It is only after the amendment in the definition of consideration in 2015, such reimbursement can be included in the gross value charged. The demand cannot be sustained and therefore the Order of the Commissioner (Appeals) is liable to be set aside - Appeal allowed.

Summary

Issues involved:
The core issue for determination is whether the amount received by the Appellants from their clients in respect of certain expenses on an actual basis would be a reimbursable amount or not, and if reimbursable, whether it needs to be included in the gross value charged for the purpose of levy of service tax.

Summary:
The Appellant, a service provider of Company Secretary services, was issued a Show Cause Notice demanding service tax for expenses not shown in their returns. The Adjudicating Authority concluded that such expenses should form part of the taxable value. On appeal, the Commissioner upheld the demand, stating the Appellant must pay service tax on the expenses claimed as reimbursable. The Appellant challenged this decision before the Tribunal, arguing that the issue of charging service tax under Rule 5 was no longer valid post a specific judgment. The Appellant contended that the expenses were reimbursed by clients and separately taxed. The Tribunal, after considering various case laws and the amended definition of "consideration," held that the demand cannot be sustained, setting aside the Commissioner's order and allowing the appeal with consequential benefits.

Judgment Details by Issue:
- The Adjudicating Authority concluded that expenses incurred by the Appellants should be part of the taxable value, which was upheld by the Commissioner.
- The Appellant challenged the decision based on the judgment in UOI Vs Intercontinental Consultants and Technocrats Pvt Ltd., arguing that the expenses were reimbursed by clients and separately taxed.
- The Tribunal considered various case laws and the amended definition of "consideration" to determine that the demand cannot be sustained, setting aside the Commissioner's order and allowing the appeal with consequential benefits.