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No Service Tax on reimbursements prior to May 14, 2015 held by SC

Service Tax - By: - Bimal jain - Dated:- 12-3-2018 - Dear Professional Colleague, The issue of taxability of out-of-pocket expenses has always been a matter of litigation. Before April, 2006 there was no specific provision to this effect. However, from April 19, 2006 onwards, with the introduction of the Service Tax (Determination of Value) Rules, 2006, ( the Valuation Rules ) Service tax is applicable on gross consideration including all expenses barring the expenses incurred as pure agent. The .....

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The Hon ble High Court of Delhi, while allowing the Writ Petition, observed that Rule 5(1) of the Valuation Rules, which provides for inclusion of the expenditure or costs incurred by the service provider in the course of providing the taxable service in the value for the purpose of charging Service tax is ultra vires erstwhile Section 66 and Section 67 of the Finance Act and travels much beyond the scope of those sections. The expenditure or costs incurred by the service provider in the course .....

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ursements of expenses claimed on actual basis by service provider. However, being aggrieved by the decision of the Hon ble High Court of Delhi in the Intercontinental Case, the Department filed a Petition for special leave to appeal before the Hon ble Supreme Court. The Hon ble Supreme Court granted leave to appeal and petition was converted into civil appeal in the case of Union of India Vs. Intercontinental Consultants & Technocrats (P.) Ltd. [2015 (2) TMI 593 - SUPREME COURT OF INDIA]. No .....

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xpenditure or cost, The Hon ble Supreme Court has categorically held that only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost will form part of valuation of taxable services for charging of Service tax. Important excerpts from the judgment of the Hon ble Supreme Court: We are summarising the important excerpts from the judgment of the Hon ble Supreme Court, for your easy digest: Then chargeable Section 66 of the Finance Act, spe .....

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its amendment, with effect from, May 01, 2006, that for valuation of taxable services for charging Service tax, the authorities are to find what is the gross amount charged for providing such taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such taxable service . Once this interpretation is to be given to Section 67 of the Finance Act, it hardly needs to be e .....

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e rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1) viz., the Service tax is to be paid only on the services actually provided by the service provider. It is trite that rules cannot go beyond the statute - Babaji Kondaji Garad Vs. Nasik Merchants Co-operative Bank Ltd. [1983 (10) TMI 270 - SUPREME COURT OF INDIA], CIT Vs. S. Chenniappa Mudaliar [1969 (2) TMI 10 .....

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is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging Service tax. Accordingly, the Revenue s appeal was dismissed for being devoid of merits. Our Comments: Undoubtedly, this is one .....

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