CESTAT Sets Aside Service Tax Demand on Pre-Amendment Reimbursable Expenses u/s 67 of the Finance Act, 1994 [Read Order]
The ruling reaffirms the Supreme Court’s interpretation of Section 67 of the Finance Act, clarifying that only amounts charged “for such service” are taxable. Consequently, no service tax is payable on the reimbursements for the relevant period.
The principal bench of Customs, excise and service tax appellant tribunal (CESTAT) , Delhi held that reimbursable expenses received during 2012–13 do not form part of the taxable value of services. The Tribunal set aside the Commissioner (Appeals) order that had included these expenses in the service tax calculation.
M/s Rajiv Dausage, an insurance surveyor, filed an appeal challenging the order-in-appeal dated 29 March 2019, where the Commissioner (Appeals) upheld the demand of service tax raised by the Deputy Commissioner for the financial year 2012–13.
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The appellant, registered under the Service Tax Act, rendered surveying services and charged surveyor fees. In addition to professional fees, the appellant received reimbursements for conveyance, halting charges, photocopying, and other incidental expenses.
The department, during an investigation, found that the total receipts of the appellant for the year 2012–13 amounted to ₹11,41,112. A show cause notice dated 23 November 2017 demanded service tax of ₹1,41,041, including interest and penalties, by invoking the extended period of limitation.
The appellant contended that reimbursements were not exigible to service tax and that, after excluding these amounts, the professional fees were below the threshold limit, hence no service tax was payable.
The appellant relied on the Supreme Court judgment in Intercontinental Consultants and Technocrats Pvt. Ltd. vs Union of India [2018] 10 GSTL 401, which clarified the interpretation of Section 67 of the Finance Act. The judgment held that the value of a taxable service is the gross amount charged “for such service” and any amounts not paid as consideration for the service rendered—such as reimbursable expenses—cannot be included in taxable value.
It was further argued that the legislative amendment to Section 67 to include reimbursable expenses in the value of taxable service was made effective from 14 May 2015, well after the relevant period, and therefore cannot be applied retrospectively to the 2012–13 financial year.
The Revenue contended that the total receipts, including reimbursements, formed part of the taxable value under Section 67 of the Finance Act. They argued that the appellant’s reliance on the Supreme Court judgment was misplaced and that the Commissioner (Appeals) had rightly upheld the demand along with interest and penalties.
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The Tribunal, after considering the submissions, held that the reimbursements received by the appellant during 2012–13 were not part of the value of taxable services. The Tribunal emphasised that the Supreme Court judgment clearly defined that only the gross amount charged for “such service” is taxable, and any reimbursed expenses unrelated to the service itself cannot be included.
The Tribunal noted that the Commissioner (Appeals) erred in upholding the demand, as it failed to apply the law applicable during the relevant period. The CESTAT clarified that the legislative amendment of May 2015 cannot retrospectively affect earlier periods. Consequently, the impugned order demanding service tax on reimbursable expenses for 2012–13 was set aside, and the appeal was allowed.
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