The Customs, Excise and Service Tax Appellate Tribunal, Principal Bench, New Delhi has allowed an appeal by M/s Consulting Engineers Group Ltd. and set aside a demand of Rs. 63,07,016/- for service tax on reimbursable expenses incurred while providing consulting engineers services to the National Highways Authority of India between July 2003 and September 2005. The Tribunal held that reimbursable expenses did not form part of the taxable value prior to the 2015 amendment to Section 67 of the Finance Act, 1994, following the Delhi High Court decision in Intercontinental Consultants and Technocrats Pvt. Ltd. v. Union of India upheld by the Supreme Court. The Tribunal also affirmed that bodies corporate were covered under the definition of 'consulting engineers' even before the 2005 amendment, per the Supreme Court ruling in Commissioner of Central Excise, Raipur v. SEPCO Electric Power Construction Corporation.
Background & Facts
The Dispute
The appellant, M/s Consulting Engineers Group Ltd., a body corporate registered for service tax, provided consulting engineers services as defined in Section 65(31) read with Section 65(105)(g) of the Finance Act, 1994 to the National Highways Authority of India (NHAI) during the period July 2003 to September 2005. The appellant raised invoices and paid service tax on the gross amounts charged up to June 2003. Thereafter, the appellant paid service tax only on the remuneration received for local professional staff and support staff but did not pay service tax on amounts received under various other heads including transportation, duty travel to site, office rent, office supplies, utilities and communication, reports and document printing, and other costs and contingencies.
Key Facts
- The appellant is a body corporate incorporated under the Companies Act
- Service tax registration was obtained for consulting engineers services
- Services were provided to NHAI, a government entity, from July 2003 to September 2005
- Up to June 2003, service tax was paid on gross amounts charged
- From July 2003 onwards, service tax was paid only on remuneration for local professional staff and support staff
- Amounts under heads such as transportation, duty travel, office rent, office supplies, utilities, communication, reports, printing, and contingencies were treated as reimbursable expenses and excluded from taxable value
- Five show cause notices were issued for different periods demanding total service tax of Rs. 1,01,01,701/-
- The Additional Commissioner confirmed the demands by order dated 07.08.2006
- On appeal, the Commissioner (Appeals) passed order dated 28.02.2007
- Both Revenue and assessee filed appeals before CESTAT
- CESTAT disposed of both appeals by Final Order dated 12.12.2011 remanding the matter to the Commissioner (Appeals)
- The impugned order-in-appeal dated 16.05.2018 was passed in the remand proceedings confirming demand of Rs. 63,07,016/- for the period July 2003 to September 2005
Procedural History
- Period of service provision: July 2003 to September 2005
- 07.08.2006: Additional Commissioner confirms demand of Rs. 1,01,01,701/-
- 28.02.2007: Commissioner (Appeals) passes order in first appeal
- 12.12.2011: CESTAT Final Order remands matter to Commissioner (Appeals) (both appeals disposed)
- 16.05.2018: Commissioner (Appeals) passes order-in-appeal in remand proceedings (Order-in-Appeal No. 340-341 (SM) ST/JPR/2018) confirming demand of Rs. 63,07,016/-
- 2018: Present appeal filed before CESTAT (Service Tax Appeal No. 52720 of 2018)
- 10.09.2026: Hearing before CESTAT Principal Bench
- 05.11.2026: Decision pronounced (Final Order No. 51668/2026)
Relief Sought
The appellant sought: (i) a declaration that as a body corporate, it was not liable to service tax on consulting engineers services before the amendment effective 01.05.2006; (ii) alternatively, that reimbursable expenses do not form part of taxable value for service tax as per Scott Wilson Kirpatric (I) Pvt. Ltd. v. CCE affirmed by the Supreme Court; (iii) that services provided to a government entity were exempt; and (iv) setting aside of the impugned order-in-appeal dated 16.05.2018.
The Legal Issue
The central questions were: (1) Whether bodies corporate were covered under the definition of 'consulting engineers' under Section 65(31) of the Finance Act, 1994 prior to the amendment effective 01.05.2005; and (2) Whether reimbursable expenses incurred in the course of providing consulting engineers services form part of the taxable value for service tax for the period prior to the 2015 amendment to Section 67 of the Finance Act, 1994.
Arguments Presented
For the Appellant
Learned counsel for the appellant made five submissions: (i) The appellant is a body corporate, and bodies corporate were brought within the ambit of consulting engineers through an amendment with effect from 01.05.2006; (ii) Service tax was not payable by bodies corporate on consulting engineers service before 01.05.2005, and this Tribunal by order dated 15.05.2014 in Commissioner of C.E. Jaipur I v. Consulting Engineers Group Ltd. (2014 (36) STR 634 (Tri-Del.)) had held so; (iii) Reimbursable expenses do not form part of the value for service tax as held in Scott Wilson Kirpatric (I) Pvt. Ltd. v. CCE (2007(5) STR 118 (Tri-Bang.)) by this Tribunal and affirmed by the Supreme Court; (iv) The services provided by the appellant were exempted as they were provided to a government entity; (v) The appeal may be allowed and the impugned order set aside.
For the Respondent
The learned authorised representative for the Revenue submitted that while bodies corporate were explicitly brought within the definition of 'consulting engineers' through an amendment in 01.05.2005, the expression 'person' before the amendment also included bodies corporate. Therefore, companies were never excluded from the definition. In Sepco Electric Power Construction Corporation v. CCE, Raipur (2016 (42) S.T.R. 37 (Tri.-Del.)), this Tribunal took the view that before the 2005 amendment, bodies corporate were not covered. Revenue appealed and the Supreme Court in Commissioner of Central Excise, Raipur v. SEPCO Electric Power Construction Corporation (2022(62) GSTL 385(SC)) set aside the Tribunal order and held that even before the amendment, bodies corporate, being persons, were covered within the definition of consulting engineers.
The Court's Analysis
The Tribunal examined the two principal contentions. On the first issue regarding coverage of bodies corporate, the Tribunal found that the Supreme Court in SEPCO Electric Power Construction Corporation had held that bodies corporate were covered under the definition of consulting engineers even before the 2005 amendment. Consequently, all contrary decisions by this Tribunal or any High Court stand overruled on this question of law.
On the second issue concerning reimbursable expenses, the Tribunal noted that the dispute was only with respect to such expenses. While Rule 5 of the Service Tax Valuation Rules did provide for inclusion of reimbursable expenses in the taxable value, the Delhi High Court in Intercontinental Consultants and Technocrats Pvt. Ltd. v. Union of India (2013 (29) S.T.R. 9 (Del.)) had held that Rule to be ultra vires of Section 67 of the Finance Act, 1994. This decision was upheld by the Supreme Court (2014 (35) S.T.R. J99 (S.C.)). Later, in 2015, Section 67 was amended to include reimbursable expenses in the taxable value. The present demand was for the period before 2015 on reimbursable expenses. In view of the binding precedent, the Tribunal concluded that the demand on reimbursable expenses for the pre-2015 period could not be sustained.
"We find that the Supreme Court has, in SEPCO Electric Power Construction Corporation held that bodies corporate were covered under the definition of consulting engineers even before the amendment in 2005. Therefore, all contrary decisions by this Tribunal or any High Court stand overruled on this question of law."
"It is true that while Rule 5 of the Service Tax Valuation Rules did provide for inclusion of such expenses in the taxable value, the Delhi High Court has, in Intercontinental Consultants and Technocrats Pvt. Ltd versus UOI held that Rule to be ultra vires of section 67 of the Act. This decision was upheld by the Supreme Court. Later, in 2015, section 67 was amended to include reimbursable expenses in the taxable value. The present demand was for the period before 2015 on reimbursable expenses."
The Verdict
The appeal was allowed and the impugned order-in-appeal dated 16.05.2018 (Order-in-Appeal No. 340-341 (SM) ST/JPR/2018) was set aside. The demand of Rs. 63,07,016/- for service tax on reimbursable expenses for the period July 2003 to September 2005 was quashed. The Tribunal held that reimbursable expenses did not form part of the taxable value prior to the 2015 amendment to Section 67 of the Finance Act, 1994, and that bodies corporate were covered under the definition of consulting engineers even before the 2005 amendment per the Supreme Court ruling in Commissioner of Central Excise, Raipur v. SEPCO Electric Power Construction Corporation.
What This Means For Similar Cases
Reimbursable Expenses Excluded Pre-Amendment
For service tax disputes relating to periods before the 2015 amendment to Section 67 of the Finance Act, 1994, reimbursable expenses incurred in the course of providing taxable services do not form part of the assessable value. The Delhi High Court ruling in Intercontinental Consultants and Technocrats Pvt. Ltd. v. Union of India, upheld by the Supreme Court, which struck down Rule 5 of the Service Tax Valuation Rules as ultra vires Section 67, remains binding precedent for pre-2015 periods. Practitioners should:
- Verify the period of service provision relative to the 2015 amendment
- Identify all reimbursable expense heads in invoices (transportation, travel, rent, supplies, utilities, printing, contingencies)
- Rely on the Intercontinental Consultants and Scott Wilson Kirpatric precedents to exclude such expenses from taxable value
- Note that the 2015 amendment prospectively changed this position
Bodies Corporate Covered Under Consulting Engineers Definition
The Supreme Court in Commissioner of Central Excise, Raipur v. SEPCO Electric Power Construction Corporation has definitively settled that bodies corporate fall within the definition of 'person' and consequently 'consulting engineers' under Section 65(31) of the Finance Act, 1994 even prior to the 2005 amendment. This overrules all contrary Tribunal and High Court decisions. Practitioners should:
- Not contest liability on the ground that the assessee is a body corporate for periods before 2005
- Focus defences on valuation issues (reimbursable expenses, abatements, exemptions) rather than coverage
- Cite the SEPCO Supreme Court decision as binding authority
Valuation Rules Ultra Vires Without Statutory Backing
The Intercontinental Consultants ruling reinforces the principle that delegated legislation (valuation rules) cannot expand the taxable value beyond what the charging statute (Section 67) permits. Where a rule includes items not contemplated by the parent provision, it is ultra vires. This principle applies broadly to service tax and GST valuation disputes. Practitioners should:
- Scrutinise valuation rules for consistency with the charging section
- Challenge rules that deem inclusion of expenses not referenced in the statute
- Use the Intercontinental Consultants precedent as authority for the proposition that reimbursable expenses require explicit statutory inclusion
