Service Tax - Reimbursable expenses incurred by service provider - Inclusion of such expenses in taxable value not sustainable.
CESTAT Chennai Quashes Service Tax Demands Against Sri Rama Vilas Service Limited. Tribunal Rules Reimbursable Expenses Not Taxable; Supply of Cranes and Forklifts Exempt from Business Support Services Classification
In a landmark judgment delivered on October 8, 2025, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Chennai has set aside service tax demands and penalties imposed on M/s. Sri Rama Vilas Service Limited, a company registered for providing Customs House Agent services among others. The tribunal, comprising Judicial Member Mr. P. Dinesha and Technical Member Mr. Vasa Seshagiri Rao, held that reimbursable expenses incurred by the service provider should not be included in the taxable value, and the supply of cranes and forklifts cannot be classified under "Business Support Services" for periods prior to May 16, 2008.
The case revolved around two core issues: whether certain expenses incurred by the appellant on behalf of their clients could be excluded from taxable value under "Pure Agent" provisions, and whether charges for the supply of cranes and forklifts could be classified as "Business Support Services." The tribunal found that Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, which mandated the inclusion of these expenses in taxable value, had been struck down by the Delhi High Court and affirmed by the Supreme Court, rendering the demands unsustainable.
Furthermore, the tribunal ruled that the supply of cranes and forklifts should be classified under "supply of tangible goods," a category introduced only on May 16, 2008. Consequently, any service tax demands for periods before this date were set aside. The tribunal also emphasized that the burden of proof for alternate classification lies with the Revenue, which failed to discharge this burden satisfactorily.
As a result of these findings, the penalties and interest previously imposed were quashed, and the appeals filed by M/s. Sri Rama Vilas Service Limited were allowed with consequential relief as per the law.
Bottom Line:
Service Tax - Inclusion of reimbursable expenses and classification of services under "Business Support Services" - Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 struck down - Supply of cranes and forklifts not classifiable as "Business Support Services" prior to 16.05.2008 - Demand and penalties set aside.
Statutory provision(s): Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 , Section 64(104), 65(105)(zzzzj), 66, 67, 76, 77 and 78 of the Finance Act, 1994
