All reimbursement of expenses are includible in value of service tax, in value of proposed amendment. Now, whether the concept of ‘pure agent’ will continue?
Though rule 5 of Service Tax Valuation did provide for inclusion of reimbursement of expenses, there were disputes about inclusion of reimbursement of expenses in value of service tax. There was adverse decision of Delhi High Court Intercontinental Consultants and Technocrats P Ltd. v. UOI (2012) 28 taxmann.com 213 = 38 STT 75 = 59 VST 487 (Del HC DB), where it was held that service tax is payable ‘for such service’. The reimbursable expenses are not charges for ‘such service’ and hence are not includible in value.
To get over that decision, it is provided in section 67 of the Finance Act that ‘consideration’ shall include any reimbursable expenditure or cost incurred by the service provider and charged, in course of providing or agreeing to provide service, except in case of prescribed circumstances – proposed Explanation (a) to section 67 of Finance Act, 1994.
Even after inclusion of reimbursement in the definition of consideration all reimbursement except falling under pure agent as per rule 5 will be taxable.
The concept of ‘pure agent’ is still alive through rule 5, though some litigation and departmental harassment is possible due change in definition of section 67.
For reference rule 5 of the valuation rule and section 67 of the finance Act 2015 has been attached herewith.