2019 (5) TMI 973 - AT - Service Tax

Valuation - Business Auxiliary Service - inclusion of reimbursable expenses in the assessable value - Constitutional Validity of Rule 5 of Service Tax (Determination of Value) Rules, 2006 - HELD THAT - On one hand the Appellate Authority has admitted that Rule 5 has been held to be ultra vires by the Hon ble High Court of Delhi but still he has gone ahead and observed that said decision would not apply in the light of the agreements and the expenses incurred by the assessee. Once Rule 5 has been held to be ultra vires, it has to be read as if the same is not on the Statute book, in which case the same cannot be invoked Appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether reimbursable expenses are part of the assessable value of services under Business Auxiliary Services.

Analysis:
The judgment by the Appellate Tribunal CESTAT ALLAHABAD involved a dispute regarding the inclusion of reimbursable expenses in the assessable value of services provided under Business Auxiliary Services. The Tribunal rejected a request for adjournment and proceeded to decide the appeal due to the simplicity of the issue. The key question was whether reimbursable expenses should be considered in the assessable value, with reference to Rule 5 of the Service Tax (Determination of Value) Rules, 2006.

The appellant argued that Rule 5 was not applicable as it had been deemed ultra vires by the Hon’ble Delhi High Court. However, the Appellate Authority dismissed this argument, stating that the expenses reimbursed by the principal or client were integral to the taxable service provided. The Authority held that such expenses formed part of the gross taxable value as per Section 67 of the Finance Act, 1994, and thus, the appeal had no merit and should be dismissed.

The Tribunal found the reasoning of the Appellate Authority contradictory. Despite acknowledging the invalidity of Rule 5 as per the Delhi High Court's decision, the Authority still relied on it to dismiss the appeal based on the expenses incurred by the appellant. The Tribunal emphasized that once a rule is declared ultra vires, it cannot be applied, and the Authority's decision was against the legal precedent set by the High Court. Consequently, the Tribunal set aside the impugned order and allowed the appeal solely on the issue of the inclusion of reimbursable expenses in the assessable value of services under Business Auxiliary Services.