CA Bimal Jain
Expera India Pvt. Ltd. and others Vs. Commissioner of Central Excise, Customs and Service Tax Hyderabad-II [2015 (10) TMI 2358 – CESTAT Bangalore]
The Department has confirmed the demand against Expera India Pvt. Ltd. and others (the Appellants) and held that reimbursement of expenses are to be included in the gross value of the services in terms of the provisions of Rule 5(1) of the Service Tax Valuation Rules. Thus, the Appellants filed appeals before the Hon’ble CESTAT, Bangalore raising the issue as to whether the reimbursement of actual expenses received by the service provider are required to be included in the assessable value of the services so provided by them or not.
The Hon’ble CESTAT, Bangalore relying upon the following cases:
- Intercontinental Consultants & Technocrafts Pvt. Ltd. Vs. Union of India [2013 (29) S.T.R. 9 (Del.)](“Intercontinental Case”);
- Link Intime India Pvt. Ltd. Vs. CCE [2015 (38) S.T.R. 705 (Tri.-Mum.)];
- Madhu Enterprises Vs. CCE decided on May 01, 2015.
has held that it is a settled law that the expenses actually incurred and reimbursed by the service recipient are not going to form part of the assessable value of the services.
Our Comments:
Effective from May 14, 2015, definition of the term ‘Consideration’ under the Finance Act has undergone changes vide the Finance Act, 2015. Prior to May 14, 2015, according to Explanation (a) in Section 67 of the Finance Act, consideration includes any amount that is payable for the taxable services provided or agreed to be provided:
“(a) “consideration” includes any amount that is payable for the taxable services provided or to be provided;”
However, vide the Finance Act, 2015, Explanation (a) to Section 67 of the Finance Act has been substituted in the following manner:
“(a) ‘Consideration’ includes-
(i) any amount that is payable for the taxable services provided or to be provided;
(ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed;
(iii) ………………”
(Emphasis Supplied)
Thus, w.e.f. from May 14, 2015, one has to apply the provisions of Rule 5(2) of the Service Tax Valuation Rules in consonance with the substituted Explanation (a)(ii) to Section 67 of the Finance Act. Accordingly, only those expenses, which a service recipient is duty bound to pay but which have been paid by the service provider to the third party on behalf of the service recipient will qualify for benefit under Rule 5(2) of the Service Tax Valuation Rules provided all other conditions specified therein are satisfied.
Further, it would not be out of place here to mention that being aggrieved by the decision of the Hon’ble High Court of Delhi in the Intercontinental Case, the Department had filed a Petition for special leave to appeal before the Hon’ble Supreme Court. The Hon’ble Supreme Court has granted leave to appeal and petition was converted into civil appeal in the case of Union of India Vs. Intercontinental Consultants & Technocrats (P.) Ltd. [(2014) 49 taxmann.com 520 (SC)].
(Author can be reached at Email: bimaljain@hotmail.com)
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Whether this amendment to include expenses reimbursed also in taxable services is constitutionally valid? How the expenses reimbursed can be called payment for service rendered?