The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that reimbursable expenses are not includible in the taxable value of the service in terms of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006.
The bench of Ashok Jindal (Judicial Member) and Rajeev Tandon (Technical Member) has relied on the decision of the Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. versus Union of India, in which it was held that reimbursements of amounts it received cannot be charged to service tax.
The appellant/assessee was appointed as the sole selling agent of M/s. Nilachal Ispat Nigam Ltd. (NINL) for selling its products. For rendering the services, the appellant received a fee of 3% of the gross sale value from NINL. The appellant disclaimed service tax. During the course of rendering the services, the appellant incurred various expenses on behalf of NINL, which were reimbursed to them.
The department was of the view that the reimbursable expenses are includible in the gross taxable value of the service by invoking Rule 5(1) of the Service Tax Valuation Rules, 2006.
Therefore, various show cause notices were issued to the appellant, proposing that the reimbursable expenses be included in the gross taxable services and that service tax be demanded.
The matters were adjudicated, and demands for service tax were confirmed against the appellant. Various penalties were also imposed.
The Appellant submitted that Rule 5(1) has been struck down by the Hon’ble Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. vs. Union of India, which has been affirmed by the Apex Court.
Rule 5(1) stated that where certain expenditures or costs are incurred by a service provider while providing the taxable service, all such expenditures or costs shall be treated as consideration for taxable services and shall be included in the value for the purpose of charging service tax.
The department contended that the appellant paid service tax on these services and took CENVAT credit. Therefore, the reimbursable expenses were part of the service provided by the appellant. Therefore, service tax was rightly demanded by the appellant.
The issue raised was whether the reimbursable expenses are to be included in the gross value of the service provided by the appellant in terms of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, or not.
The tribunal, while setting aside the order, has held that the reimbursable expenses are not includible in the taxable value of the service provided by the appellant.