Reimbursements for Direct ABP Operation Costs per Written Agreement Exempt from Service Tax: CESTAT

In a recent ruling, the Kolkata bench of CESTAT held that reimbursements for direct ABP operational costs, as per a written agreement, are exempt from service tax. The case involved M/s Direxions Marketing Solutions, a service provider, who faced a demand notice for non-payment of service tax on amounts received from ABP Pvt. Ltd. The tribunal found that these amounts constituted reimbursements rather than taxable income under Section 67 of the Finance Act, 1994 and Rule 5(1) of the Service Tax Determination of Value Rules, 2006. The bench referenced the Intercontinental Consultant case law, which supports that reimbursements are not subject to service tax. Consequently, CESTAT set aside the demand both on merit and due to the statute of limitations. This decision underscores the importance of clear contractual terms in distinguishing between taxable income and reimbursements in service tax disputes.