No Service Tax Applicable on amount claimed as reimbursement of expenses by CA Firm

The appellant was engaged in providing “chartered accountant services”. The dispute in the present appeal is regarding the non-payment of service tax on the amount representing reimbursement of expenses like conveyance, travelling and mobile expenses.

A show cause notice dated July 02, 2008 was issued to the appellant mentioning therein:

“And whereas, from the perusal of statement of Sri Rajiv Bajpai on behalf of RMA & Associates and the reply of RMA dated May 17, 2008, it appears that RMA have not paid service tax on the expenditure got reimbursed by them in the course of performance of their professional services and it appears that value of service is to be added in the gross value of services rendered by them in terms of section 67 of Finance Act, 1994. It therefore, appears that service tax along with education amounting to Rs.57,613/- as detailed in the Annexure to this show cause notice is recoverable under section 73 of Finance Act, 1994.”

8. The issue, in respect of reimbursable expenses has been considered and decided by the Supreme Court in Union of India vs. Intercontinental Consultant and technocrats. The relevant observations are as follows:

“21. Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assesses. As per these Rules, these reimbursable expenses also form part of ‘gross amount charges’. Therefore, the core issue is as to whether Section 67 of the Act permits the subordinate legislation to be enacted in the said manner, as done by Rule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act.

22. Section 66 of the Act is the charging Section which reads as under:

“there shall be levy of tax (hereinafter referred to as the service tax) @12% of the value of taxable services referred to in subclauses of Section 65 and collection in such manner as may be prescribed.”

23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various subclauses of Section 65. Further, it also specifically mentions that the service tax will be @12% of the ‘value of taxable services’. Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon.

24. In this hue, the expression ‘such’ occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing ‘such’ taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such ‘taxable service’. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Section 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider ‘for such service’ and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service.

25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67 (4) is expressly made subject to the provisions of sub-section (1). Mandate of sub- section (1) of section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider.”

Thus, service tax could not have been levied on the reimbursed expenses.

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