Pre-2015 Flight Ticket Reimbursements Not Subject to Service Tax: CESTAT Allows Refund for CA Firm [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled in favour of a Chartered Accountants firm, clarifying that client-reimbursed flight ticket expenses prior to May 2015 cannot be included in the taxable value of services.

M/s. Guru & Ram, Chartered Accountants, filed an appeal against Order, passed by the Commissioner of Service Tax (Appeals-II), challenging the inclusion of reimbursed flight ticket expenses in the taxable value of services for the period April 2010 to March 2011.

The firm contended that while partners and employees travelled to various locations in the course of rendering professional services, flight tickets were either provided by clients or reimbursed on an actual cost basis when booked by the firm.

The Adjudicating Authority had treated these reimbursements as part of taxable value, assessing Service Tax at Rs. 69,091/-, invoking the extended period of limitation, and levying an equivalent penalty under Section 78 along with interest under Section 75.

The authorities relied on Circular No. B1/4/2006-TRU and illustrations under Rule 5 of the Service Tax (Determination of Value) Rules, 2006, concluding that the firm did not qualify as a “pure agent” under Rule 5(2).

On first appeal, the Commissioner (Appeals) upheld the demand, observing that such expenses were integral to the consideration for professional services.

The appellant argued that prior orders for tax periods from October 2007 to March 2010 had ruled in their favor and relied on judicial pronouncements, including the Supreme Court judgment in Union of India v. Intercontinental Consultants & Technocrats Pvt. Ltd. (2018) and the Madras High Court decision in Brokeman Logistics India P. Ltd. v. Commissioner of CGST & Central Excise (2025), establishing that pre-amendment Section 67 did not contemplate taxation of reimbursed expenses.

The Tribunal considered the legislative history of Section 67 and Rule 5 of the Service Tax Rules. Section 67, prior to its amendment by the FinanceAct, 2015 (effective 14.05.2015), did not expressly include reimbursable expenditures in the definition of “consideration.”

SECTION 67.Valuation of taxable services for charging service tax.

………Explanation. — For the purposes of this section, — (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) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket. …….

The Tribunal noted that Rule 5(1) treats expenditures incurred “in the course of” providing taxable services as part of consideration, with an exception under Rule 5(2) for pure agents. However, the Supreme Court in Intercontinental Consultants clarified that reimbursable expenses could only be included in taxable value post-May 2015.

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Applying this principle, the two-member bench comprising Vasa Seshagiri Rao (Technical Member) and P. Dinesha ( Judicial Member) observed that the inclusion of client-reimbursed flight ticket expenses for the 2010–2011 period was inconsistent with the law as it stood then.

Consequently, the Tribunal allowed the appeal, holding that the amounts in question could not form part of the taxable value of services. It noted that the authorities below had erred in applying the extended period and penalty provisions, and the appellant was entitled to consequential relief under the law.

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