Budget 2015 has proposed many changes to undo the done. Whether to tax reimbursable expenditure or not, has remained most litigative issue between the Department and Assessee. One of the matter which came up before the Delhi High Court to decide, whether out of pocket expenses or reimbursable expenses incurred by the service provider in the course of providing the taxable services has to be included in the value of taxable services or not. The High Court in its landmark judgment in the case of Intercontinental Consultants & Technocrats (P.) Ltd. v. Union of India as reported in STO 2012 Del 1148 held that, the expenditure or costs incurred by the service provider in the course of providing the taxable service can never be considered as part of the gross amount charged by the service provider for the services provided.
The Court further held that, Rule 5 (1) of the Service Tax (Determination of Value) Rules, 2006 which prescribes for inclusion of such value is ultra vires section 66 and section 67 of the Finance Act, 1994 since it travels beyond the scope of the aforesaid sections.
In order to do away with aforesaid ruling the Finance Minister has proposed to amend the definition provided under Section 67 of the Finance Act, 1994. In general terms, ‘consideration’ means everything received in return for a provision of service which includes monetary payment and any consideration of non-monetary nature as well as deferred consideration. To be taxable an activity should be carried out by a person for another for a ‘consideration’. However, as per Explanation to Section 67 of the 1994 Act, as amended by the Finance Bill 2015, the scope has expanded so as to include any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed in the ambit of the consideration. This expanded meaning will be effective at a later date when the Finance Bill 2015 gets enacted.
The TRU letter dated 28.02.2015 clarifies that, “Section 67 prescribes for the valuation of taxable services. It is being prescribed specifically in this section that consideration for a taxable service shall include: all reimbursable expenditure or cost incurred and charged by the service provider. The intention has always been to include reimbursable expenditure in the value of taxable service. However, in some cases courts have taken a contrary view. Therefore, the intention of legislature is being stated specifically in section 67.”
The Government has made its intention clear by amending the law. However, only relief to the tax payer is, such amendment is not retrospective, it’s prospective.c