Reimbursement vs service tax

Rule 5 (1) of Service Tax (Determination of Value) Rules, 2006, specifically provides the clause for inclusion of cost or expenditure in value of taxable services. This deeming fiction created to consider all the expenditure or costs incurred by the service provider in the course of providing taxable services.

However Rule 5 (2) provides exclusion for those expenditure or costs incurred by the service provider as a pure agent of the recipient of the service subject to fulfilling various conditions specified there in. Hence if the service provider gets actual re imbursement of expenses incurred in the course of output service, then subject to the conditions specified in the rule, such expenses can be excluded while arriving the taxable value.

The Delhi High Court in case of Intercontinental Consultants and Technocrats P Ltd has down the provisions related to reimbursement as ultra-virus.