2024 (9) TMI 842 - AT - Service Tax

Valuation of service tax - inclusion of reimbursable expenses in the taxable value - reverse charge mechanism - HELD THAT - The demand is made for not including the expenses incurred for providing the service and reimbursed. The issue is settled by the decision of the Hon ble Supreme Court in the case of Intercontinental Consultants and Technocrats, Pvt Ltd 2018 (3) TMI 357 - SUPREME COURT 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.' The demand of service tax for the impugned period cannot sustain and requires to be set aside. The impugned order is set aside - Appeal allowed.

Summary

Issues:
Whether reimbursable expenses should be included in the taxable value for service tax calculation.

Analysis:
The appellant, engaged in managing assets for mutual fund schemes, was paying service tax on reverse charge basis for sales/promotional services received from mutual fund distributors. The issue arose when the department demanded service tax on reimbursable expenses incurred by the service providers, which the appellant did not include in their tax calculation. The department argued that all expenses incurred in providing the service should be part of the taxable value. The appellant cited a Supreme Court decision in a similar case to support their argument that reimbursable expenses should not be included in the taxable value.

The department contended that all expenses incurred by the service provider, including reimbursable expenses, should be considered as part of the taxable value for service tax calculation. They highlighted Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, which states that all costs incurred by the service provider in providing taxable services should be included in the value for charging service tax. The department also argued that the mutual fund distributors did not qualify as pure agents under the rules, as they used the services procured for providing sales promotion services to the mutual fund.

After considering the arguments and the Supreme Court decision cited by the appellant, the tribunal concluded that the demand for service tax on reimbursable expenses could not be sustained. Citing the Supreme Court decision in a similar case, the tribunal held that reimbursable expenses should not be included in the taxable value for service tax calculation. Therefore, the tribunal set aside the impugned order, allowing the appeal with consequential reliefs, if any.