Reimbursed Expenses Like "Other Expenses" and "Extra Hour Service Charges" Not Taxable Under Service Tax: CESTAT [Read Order]

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that reimbursed expenses such as "Other Expenses" and "Extra Hour Service Charges" are not includible in the assessable value for service tax calculation under pre-2015 law.

Middleton Leaseholders Pvt. Ltd., which sublet premises and collected incidental charges from tenants, was issued a demand of Rs. 41.99 lakh in service tax, interest, and penalties. The department treated the reimbursed charges as taxable under “Maintenance or Repair Services” and “Renting of Immovable Property Services.”

The appellant argued that these were actual reimbursements and not consideration for services, citing the Supreme Court’s ruling in Intercontinental Consultants. They also contended that the delay in paying service tax on rent was due to prevailing legal uncertainty.

The revenue argued that all charges formed part of taxable services and were liable to tax under Rule 5 of the Service Tax Valuation Rules. They also justified penalties due to non-registration.

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The two-member bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that incidental reimbursements were not part of the service consideration and could not be taxed.

The tribunal also held that service tax liability on renting of immovable property was under legal dispute during the period, and interest could not be demanded retrospectively. Since the appellant failed to register under the required service category, a nominal penalty under Section 77 was held to be justified.

The tribunal explained that reimbursement of actual expenses does not attract service tax in the absence of a legal provision expressly allowing it before the 2015 amendment.

The tribunal also noted that the department failed to establish any deliberate suppression of facts. The major portion of the demand was set aside, and only a small interest amount and a Rs. 10,000/- penalty were upheld. The appeal was thus allowed in part.

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