19th April, 2006.

Notification No.12/2006-Service Tax

G.S.R. (E).– In exercise of the powers conferred by clause (aa) of sub-

section (2) of section 94 of the Finance Act, 1994 (32 of 1994), the Central
Government hereby makes the following rules, namely:-
1. Short title and commencement.– (1) These rules may be called the Service Tax (Determination
of Value) Rules, 2006.
(2) They shall come into force on the date of their publication in the Official
Gazette.2. Definitions.–In these rules, unless the context otherwise requires,–
(a) “Act” means the Finance Act, 1994 (32 of 1994);
(b) “section” means the section of the Act;
(c) “value” shall have the meaning assigned to it in section 67;
(d) words and expressions used in these rules and not defined but defined in the Act
shall have the meaning respectively assigned to them in the Act.

3. Manner of determination of value.– Subject to the provisions of section 67, the value of taxable
service, where the consideration received is not wholly or partly consisting of money, shall be
determined by the service provider in the following manner:–
(a) the value of such taxable service shall be equivalent to the gross amount charged by
the service provider to provide similar service to any other person in the ordinary course of trade
and the gross amount charged is the sole consideration;
(b) where the value cannot be determined in accordance with clause (a), the service
provider shall determine the equivalent money value of such consideration which shall, in no case
be less than the cost of provision of such taxable service.

4. Rejection of value.– (1) Nothing contained in rule 3 shall be construed as restricting or calling
into question the power of the Central Excise Officer to satisfy himself as to the accuracy of any
information furnished or document presented for valuation.
(2) Where the Central Excise Officer is satisfied that the value so determined by the service
provider is not in accordance with the provisions of the Act or these rules, he shall issue a notice
to such service provider to show cause why the value of such taxable service for the purpose of
charging service tax should not be fixed at the amount specified in the notice.
(3) The Central Excise Officer shall, after providing reasonable opportunity of being heard,
determine the value of such taxable service for the purpose of charging service tax in accordance

with the provisions of the Act and these rules.

5. Inclusion in or exclusion from value of certain expenditure or costs.– (1) Where any
expenditure or costs are incurred by the service provider in the course of providing taxable
service, all such expenditure or costs shall be treated as consideration for the taxable service
provided or to be provided and shall be included in the value for the purpose of charging service
tax on the said service.
(2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service
provider as a pure agent of the recipient of service, shall be excluded from the value of the
taxable service if all the following conditions are satisfied, namely:-
(i) the service provider acts as a pure agent of the recipient of service when he
makes payment to third party for the goods or services procured;
(ii) the recipient of service receives and uses the goods or services so procured by
the service provider in his capacity as pure agent of the recipient of service;
(iii) the recipient of service is liable to make payment to the third party;
(iv) the recipient of service authorises the service provider to make payment on his
behalf;
(v) the recipient of service knows that the goods and services for which payment has
been made by the service provider shall be provided by the third party;
(vi) the payment made by the service provider on behalf of the recipient of service has
been separately indicated in the invoice issued by the service provider to the
recipient of service;
(vii) the service provider recovers from the recipient of service only such amount as
has been paid by him to the third party; and
(viii) the goods or services procured by the service provider from the third party as a
pure agent of the recipient of service are in addition to the services he provides

on his own account.

Explanation1.–For the purposes of sub- rule (2), “pure agent” means a person who–
(a) enters into a contractual agreement with the recipient of service to act as his pure
agent to incur expenditure or costs in the course of providing taxable service;
(b) neither intends to hold nor holds any title to the goods or services so procured or
provided as pure agent of the recipient of service;
(c) does not use such goods or services so procured; and
(d) receives only the actual amount incurred to procure such goods or services.

Explanation2.– For the removal of doubts it is clarified that the value of the taxable service is
the total amount of consideration consisting of all components of the taxable service and it is
immaterial that the details of individual components of the total consideration is indicated
separately in the invoice.
 Illustration 1.– X contracts with Y, a real estate agent to sell his house and thereupon Y gives
an advertisement in television. Y billed X including charges for Television advertisement and
paid service tax on the total consideration billed. In such a case, consideration for the service
provided is what X pays to Y. Y does not act as an agent behalf of X when obtaining the
television advertisement even if the cost of television advertisement is mentioned separately
in the invoice issued by X. Advertising service is an input service for the estate agent in order

to enable or facilitate him to perform his services as an estate agent

Illustration 2.– In the course of providing a taxable service, a service provider incurs
costs such as traveling expenses, postage, telephone, etc., and may indicate these
items separately on the invoice issued to the recipient of service. In such a case, the
service provider is not acting as an agent of the recipient of service but procures such
inputs or input service on his own account for providing the taxable service. Such
expenses do not become reimbursable expenditure merely because they are indicated
separately in the invoice issued by the service provider to the recipient of service.

Illustration 3.– A contracts with B, an architect for building a house. During the course
of providing the taxable service, B incurs expenses such as telephone charges, air
travel tickets, hotel accommodation, etc., to enable him to effectively perform the
provision of services to A. In such a case, in whatever form B recovers such
expenditure from A, whether as a separately itemised expense or as part of an
inclusive overall fee, service tax is payable on the total amount charged by B. Value of

the taxable service for charging service tax is what A pays to B.

Illustration 4.– Company X provides a taxable service of rent-a-cab by providing chauffeur-
driven cars for overseas visitors. The chauffeur is given a lump sum amount to cover his food
and overnight accommodation and any other incidental expenses such as parking fees by the
Company X during the tour. At the end of the tour, the chauffeur returns the balance of the
amount with a statement of his expenses and the relevant bills. Company X charges these
amounts from the recipients of service. The cost incurred by the chauffeur and billed to the
recipient of service constitutes part of gross amount charged for the provision of services by
the company X.
6. Cases in which the commission, costs, etc., will be included or excluded.– (1) Subject to the
provisions of section 67, the value of the taxable services shall include‚–
(i) the commission or brokerage charged by a broker on the sale or purchase of
securities including the commission or brokerage paid by the stock-broker to any sub-
broker;
 (ii) the adjustments made by the telegraph authority from any deposits made by the
subscriber at the time of application for telephone connection or pager or facsimile or
telegraph or telex or for leased circuit;
(iii) the amount of premium charged by the insurer from the policy holder;
(iv) the commission received by the air travel agent from the airline;
(v) the commission, fee or any other sum received by an actuary, or intermediary or
insurance intermediary or insurance agent from the insurer;
(vi) the reimbursement received by the authorised service station, from manufacturer
for carrying out any service of any motor car, light motor vehicle or two wheeled
motor vehicle manufactured by such manufacturer;
(vii) the commission or any amount received by the rail travel agent from the
Railways or the customer;
(viii) the remuneration or commission, by whatever name called, paid to such agent by
the client engaging such agent for the services provided by a clearing and forwarding
agent to a client rendering services of clearing and forwarding operations in any
manner; and
(ix) the commission, fee or any other sum, by whatever name called, paid to such
agent by the insurer appointing such agent in relation to insurance auxiliary services
provided by an insurance agent.
(2) Subject to the provisions contained in sub-rule (1), the value of any taxable service, as the
case may be, does not include–
(i) initial deposit made by the subscriber at the time of application for telephone
connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit;
(ii) the airfare collected by air travel agent in respect of service provided by him;
(iii) the rail fare collected by air travel agent in respect of service provided by
him;and
(iv) interest on loans.
7. Actual consideration to be the value of taxable service provided from outside India.– (1) The
value of taxable service received under the provisions of section 66A, shall be such amount as is
equal to the actual consideration charged for the services provided or to be provided.
(2) Notwithstanding anything contained in sub-rule (1), the value of taxable services specified in
clause (ii) of rule 3 of Taxation of Services (Provided from Outside India and Received in India)
Rules, 2006, as are partly performed in India, shall be the total consideration paid by the recipient
for such services including the value of service partly performed outside India.