The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) of Chennai Bench has held that there is no service tax on reimbursable expenses.
Benchmark Consultants, the appellants are registered for payment of service tax under the category of “Business Auxiliary Services” as defined in Section 65 (105) (zzb) of the Finance Act, 1994. Based on the Intelligence report that the appellant was resorting to undervaluation by not including the taxable value of the amounts of reimbursements received by them for their services, a Show cause notice was issued proposing to demand service tax on the reimbursable amounts received by them along with interest and for imposing penalties.
The original authority confirmed the demand along with interest and imposed a penalty. On appeal, the Commissioner (Appeals) upheld the demand. According to Section 65 (105) (zzb), any service provided or to be provided to a client, by any person about business auxiliary service is a ‘taxable service’.
It was contended that there is no dispute that the amounts are like reimbursable expenses. The issue as to whether service tax can be levied on reimbursable expenses has been settled in the case of UOI Vs Intercontinental Consultants and Technocrats Pvt. Ltd. – 2018 (10) wherein it was held that the reimbursement expenses do not form part of the ‘gross amount charged’ for the purposed of the value of the taxable services chargeable to service tax. Further, the Hon’ble court again reiterated the well-established principle that the rules cannot go beyond the statute by holding that Rule 5 of the Service Tax (Determination of Value) Rules 2006, is ultra vires to Section 66 and Section 67 of the Finance Act, 1994.
A Coram comprising of Ms. Sulekha Beevi C S, Member (Judicial) and Mr. Vasa Seshagiri Rao, Member (Technical) observed that the demand is made for the non-inclusion of reimbursable expenses in the taxable value for discharge of service tax liability. In light of the case of UOI Vs Intercontinental Consultants and Technocrats (supra), the Tribunal held that the demand cannot sustain and set aside the impugned order.
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