2017 (9) TMI 624 - AT - Service Tax

Valuation - inclusion of reimbursable expenses in the assessable value - Rule 5(1) of the service tax (Determination of Value) Rules, 2006 - Held that - since the period of dispute is prior to April 2006, the provisions of Rule 5(1) of the service tax (Determination of Value) Rules, 2006 will not be applicable for inclusion of reimbursable expenses in the assessable value for the purpose of payment of service tax, for the reason that the said rule was inserted in the statue book w.e.f 18.04.2006 - In absence of any statutory provisions, authorizing levy and collecting of tax on the reimbursable expenses, the service tax demand cannot be fastened against the service provider - appeal dismissed - decided against Revenue.

Summary

Issues:
Interpretation of Rule 5(1) of the service tax (Determination of Value) Rules, 2006 for inclusion of reimbursable expenses in assessable value for service tax liability.

Analysis:
The case involved a dispute regarding the inclusion of reimbursable expenses in the assessable value for service tax liability. The appellant, registered for providing Cargo Handling Service, received a show cause notice from the service tax Department alleging that the activities undertaken by the appellant were related to clearing and forwarding agency service. The Department confirmed a service tax demand of ?19,53,637 along with interest and imposed penalties. However, the ld. Commissioner (Appeals) set aside the adjudication order, leading to the Revenue appealing before the Tribunal.

The Revenue argued that the reimbursable expenses should be included in the assessable value for service tax payment. On the other hand, the respondent's advocate contended that since the dispute period was before April 2006, Rule 5(1) of the service tax (Determination of Value) Rules, 2006, which allows for inclusion of reimbursable expenses, should not apply. The advocate relied on a tribunal decision supporting this stance.

Upon review, the Tribunal found that Rule 5(1) was introduced on 18.04.2006, and as the dispute period was before this date, the rule could not be applied retrospectively. The Tribunal emphasized that in the absence of statutory provisions authorizing tax on reimbursable expenses, the service tax demand could not be imposed on the service provider. Therefore, the Tribunal upheld the ld. Commissioner (Appeals)'s decision, dismissing the Revenue's appeal.

In conclusion, the Tribunal's judgment clarified that Rule 5(1) of the service tax (Determination of Value) Rules, 2006 does not apply retrospectively to services provided before its effective date. This decision safeguards service providers from being taxed on reimbursable expenses incurred before the rule's introduction, providing clarity on the assessable value for service tax liability.