Recently the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) in Kolkata has quashed a service tax demand of Rs. 4,20,162/- against an assessee, M/s Saila Shipping & Clearing Agency Private Limited, after it was revealed that the company had paid an excess amount against the alleged shortfall.
The case began from an audit covering the period between 2007-08 and 2011-12, during which the tax authorities claimed that the assessee had underreported its taxable income in its service tax returns, leading to a demand for the unpaid tax.
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Authorities argued that the assessee had not fully declared its taxable value in its returns, leading to a shortfall of Rs. 4.2 lakh. In addition, the assessee-company was accused of failing to maintain proper records regarding its CENVAT credit claims and not paying the correct tax for services exempted under the World Health Organization ( WHO ) clearance work.
The audit further highlighted that the assessee-company received advances amounting to Rs. 66.64 lakh for Customs House Agent services and had not paid service tax on these advances. Furthermore, the authorities contended that the company collected over Rs. 16 crore in expenses reimbursed by clients and failed to pay service tax on these amounts, asserting that these were not exempt.
In its defense, the assessee produced a reconciliation statement, showing that it had actually paid Rs. 91.32 lakh in service tax—exceeding the required amount of Rs. 86.70 lakh. The company also cited a landmark Supreme Court ruling from Union of India vs. Intercontinental Consultants & Technocrats Pvt. Ltd., arguing that service tax was not applicable on reimbursed expenses.
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After reviewing the evidence, the tribunal bench of Mr Ashok Jindal and Mr K Anpazhakan found that the assessee had indeed paid an excess amount of Rs. 4.62 lakh, surpassing the amount in question. As a result, the Rs. 4.20 lakh demand was ruled unsustainable, and the tribunal dismissed the penalty and demand imposed by the tax authorities. The CESTAT also rejected the appeal by the Revenue Department, upholding the assessee’s stance that no service tax was due on reimbursable expenses.
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