2019 (1) TMI 437 - AT - Service Tax

Valuation - expenses incurred for providing free services are reimbursed by the manufacturers - taxability - Held that - The issue as to taxability of the reimbursible expenses has finally been laid to rest by the Hon ble Supreme Court in the case of Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. 2018 (3) TMI 357 - SUPREME COURT OF INDIA , where it was held that 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 - appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge of demand of service tax on expenses reimbursed.

Analysis:
The appellants, engaged in sales and servicing of Light Motor Vehicles, challenged the demand of service tax on expenses reimbursed by manufacturers for providing free services during the warranty period. Show Cause Notices were issued alleging incorrect adoption of taxable service value, failure to include consideration used in taxable service, and contravention of relevant provisions. After confirmation of demands in Orders-in-Original, the issue of taxability of reimbursable expenses was raised. The Hon'ble Supreme Court's judgment clarified that reimbursable expenses form part of the 'gross amount charged' under Rule 5 of the Rules, 2006. The Court emphasized that service tax is levied on the value of taxable services actually rendered, and any amount not calculated for providing such taxable service should not be part of the valuation. The Court held that rules cannot go beyond the statute, and any conflict between rules and the main enactment must be resolved in favor of the statute. The judgment highlighted that Section 67 of the Act mandates service tax payment only on services actually provided by the service provider. The Court noted that the Legislature amended Section 67 in 2015 to include reimbursable expenditure in the valuation of taxable services, emphasizing the prospective nature of such changes. The appeals were allowed based on the Supreme Court's interpretation, providing consequential benefits as per law.

This detailed analysis of the judgment provides insights into the legal issues surrounding the demand of service tax on expenses reimbursed, the interpretation of relevant provisions, and the impact of the Hon'ble Supreme Court's decision on the case.