Relief for Indian Oil: CESTAT Holds No Service Tax Payable on Reimbursable Expenses Incurred for CISF Security Services [Read Order]

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that Indian Oil Corporation Ltd. (IOCL) is not liable to pay service tax on reimbursable expenses paid to the Central Industrial Security Force (CISF) in connection with the deployment of security personnel.

Indian Oil Corporation Ltd., the appellant, had engaged CISF for providing security at its facilities in Panipat and Sonepat. The appellant reimbursed CISF for expenses including rent-free accommodation, medical benefits, lease accommodation, telephone bills, vehicle usage, stationery, and other incidental charges.

The department treated these reimbursements as part of the value of taxable service and issued two show cause notices alleging short-payment of service tax under reverse charge mechanism, applicable from 1 July 2012 onwards. These demands were confirmed by the adjudicating authority and later upheld by the Commissioner (Appeals). The appellant challenged these decisions before the tribunal.

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The appellant’s counsel argued that the matter was no longer in dispute as the Ahmedabad Bench of CESTAT had already ruled in the appellant’s own case on the same issue. They referred to Final Order No. 11606-11607/2024 dated 23.07.2024, in which the tribunal held that reimbursements for CISF services are not includible in the taxable value for purposes of service tax.

The two-member bench comprising S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that the facts and issues were identical to those decided by the Ahmedabad Bench.

In the Ahmedabad ruling, the tribunal had observed that the expenses incurred by the appellant were reimbursed on an actual basis and were not part of the consideration for security services. The bench explained that under Section 67 of the Finance Act, 1994, only the amount charged as consideration for the service is taxable, and not additional reimbursements or free facilities provided by the recipient.

The tribunal also pointed out that Rule 5 of the Service Tax (Determination of Value) Rules, which allowed such additions, had already been held ultra vires by the Supreme Court. Following the reasoning laid down by the Ahmedabad Bench and consistent judicial precedents, the Chandigarh Bench set aside the orders of the Commissioner (Appeals) and allowed both appeals filed by Indian Oil Corporation Ltd.

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