2008 (9) TMI 84 - HC - Service Tax

Constitutional validity of Rule 5 of the Service Tax (Determination of Value) Rules, 2006 to the extent it includes re-imbursement of expenses in the value of taxable services - assessee contend that reimbursable expenses like air travel, hotel stay, room rent, boarding etc. not form part of service rendered as Consulting Engineer case is adjourned - in the meanwhile, proceedings pursuant to SCN may continue, however, no coercive steps be taken till an adjudication order is passed.

Summary

Issues:
Challenge to constitutional validity of Rule 5 of the Service Tax (Determination of Value) Rules, 2006 regarding reimbursement of expenses in the value of taxable services for service tax levy.

Analysis:
The petitioner contested the constitutional validity of Rule 5 of the Service Tax (Determination of Value) Rules, 2006, specifically objecting to the inclusion of reimbursement of expenses in the taxable services' value for service tax imposition. The petitioner argued that this rule contravened sections 66 and 67 of Chapter V of the Finance Act, 1994.

The petitioner, engaged in providing consulting engineering services, including services to the National Highways Authority of India, received payments for services rendered along with reimbursements for expenses like air travel, hotel stays, boarding charges, etc. While the petitioner paid service tax on the service fees received, no service tax was remitted on the reimbursed expenses. The respondents issued a show-cause notice to the petitioner, contending that service tax should also apply to the reimbursed expenses, considering them part of the gross value of taxable services under section 67 and the aforementioned valuation Rule.

The petitioner's counsel argued that the value of taxable services under section 67 should solely encompass the service provided, excluding reimbursable expenses as they do not constitute part of the services. Additionally, it was highlighted that the invoices to clients distinctly listed reimbursable expenses separately from service charges.

The Court issued notice to the respondents, with acceptance by Ms. Shilpa Singh, for filing counter-affidavits within four weeks and allowed for rejoinders within two weeks thereafter. The case was scheduled for further proceedings on 24.02.2009, with instructions to continue the show-cause notice proceedings but refraining from coercive actions until an adjudication order is issued.