In Brief
The Supreme Court examined whether reimbursable expenses incurred by service providers (such as travel, accommodation, and office costs) must be included in the value of taxable services for service tax purposes. The Court held that Rule 5 of the Service Tax (Determination of Value) Rules, 2006, which mandates such inclusion, is ultra vires Sections 66 and 67 of the Finance Act, 1994. The charging provision (Section 66) authorises tax only on taxable services; Section 67's valuation provision is limited to the gross amount charged 'for such service' actually provided. Reimbursable expenses do not constitute consideration for the service itself. The Court upheld the High Court's judgment striking down Rule 5, noting that the Legislature itself recognised this limitation by amending Section 67 effective May 14, 2015, to explicitly include reimbursable expenses—a change with prospective effect only.
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