In Service Tax Appeal No. 50379 of 2021- CESTAT- Reimbursable expenses cannot be included in service tax valuation, CESTAT (Delhi) rules in favour of Boeing India Defense
Members Rachna Gupta (Judicial) & Hemambika R. Priya (Technical) [10-05-2023]

Read Order: Principal Commissioner of Central Goods & Service Tax v. M/s. Boeing India Defense Pvt. Ltd

Chahat Varma

New Delhi, May 11, 2023: Holding that section 67 of the Finance Act, 1994 does not allow for the inclusion of reimbursable expenses in the valuation of service for the purpose of service tax, the Principal bench of the Customs, Excise & Service Tax Appellate Tribunal, has allowed the appeal filed by M/s. Boeing India Defense Pvt. Ltd. (appellant) and dismissed the department’s appeal, that had challenged the dropping of the service tax demand of Rs.1,68,14,783/- by the adjudicating authority.

Brief facts of the case were that the appellant had entered into an agreement with its holding company, The Boeing Company (TBC), for providing services on a cost-plus mark-up basis. In order to provide service effectively and efficiently, the appellant employed employees of TBC on secondment basis. The appellant also entered into a salary reimbursement agreement with TBC to facilitate secondment of employees from TBC to it and payment of remuneration to the seconded employee in their home country. Pursuant to a service tax audit, the tax department issued a show cause notice, demanding service tax on expenses incurred by the appellant, such as hotel stays and school tuition fees, considering them as part of the consideration paid for importing manpower services from April 2015 to June 2017. The appellant had argued that expenses incurred in India, including the reimbursement of school tuition fees to seconded employees, should not be included in the value of taxable service for the purpose of service tax under the reverse charge mechanism. They relied on the settled principle of law that expenses incurred by the service recipient, or any goods or services provided by the service recipient to the service provider is not liable to be included in the value of taxable service for the purpose of payment of service tax.

The Tribunal observed that the issue at hand was whether reimbursable expenses should be included in the gross value for the levy of service tax. The Tribunal noted that this issue has already been settled by the Hon'ble High Court of Delhi in the case of Intercontinental Consultants & Technocrats Pvt Ltd vs. Union of India [LQ/DelHC/2012/5597], wherein the High Court has held that reimbursements received by a service provider cannot be subjected to service tax.

The Tribunal further observed that the issue regarding non-payment of service tax on reimbursable expenses, has already been settled by the Hon'ble Apex Court in the case of Union of India and Anr. v. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd [LQ/SC/2018/306], wherein the Apex Court has held as per Section 67 (un-amended prior to 1st May, 2006) or after its amendment with effect from 1st May, 2006, the only possible interpretation of the said Section 67 is that for the valuation of taxable services for charging service tax, the gross amount charged for providing such taxable services only has to be taken into consideration. Any other amount which is not for providing such taxable service cannot be the part of the said value. The Top Court clarified that the value of service tax cannot be anything more or less than consideration paid as quid pro quo for rendering such services.