Expenses Received as Reimbursement of Expenses made on behalf of Service Recipient can’t form part of Assessable Value, No Service Tax: CESTAT

The Customs, Excises, and Service Tax Appellate Tribunal (CESTAT) held that expenses received as reimbursement of expenses made on behalf of service recipients by the appellant can’t form part of the assessable value, so service tax cannot be charged.

The appellant, Awasthi Brothers is a partnership firm registered with the Service Tax department for the taxable service under the category of “Clearing and Forwarding services‟.

The appellant as a Clearing and Forwarding agent has been undertaking the work of Clearing and Forwarding for various companies such as M/s. Hindustan Unilever Limited, M/s. Berger Paints India Ltd., M/s. L G Electronics India Pvt Ltd. And M/s. Moser Baer India Ltd. etc.

The appellant has been discharging service tax liability on the commission /remuneration received by it towards the “Clearing and Forwarding service‟ received by it from the above-mentioned companies.

The internal audit link of the Department conducted an audit of statutory records of the appellant and formed a view that appellant adopted a novel modus operandi by which it bifurcated the amount received by it from various service recipients under two different category of services i.e. “Clearing and Forwarding services‟ and “Goods and Transport Agency service‟.

The Department entertained a view that the appellant had short paid the service tax by an amount of Rs.1,91,28,126/- and accordingly, a show-cause notice came to be issued to the appellant whereunder service tax amounting to Rs. 1,91,28,126/- has been demanded along with interest under the provisions of sections 73 and 75 of the Finance Act, 1994. The penal provisions as provided under section 76, section 77, and section 78 of the Finance Act, 1994 have also been invoked in the show cause notice.

The appellant contended that an amount of Rs. 93,96,803/- was received by the appellant as reimbursement of expenses made on behalf of service recipient on account of depot expenses, weighing machine expenses, empty cartons charges, diesel expenses, housekeeping expenses, etc.

The two-member bench headed by the President Justice Dilip Gupta observed that all the expenses which have been reimbursed by the principal to the appellant working as a pure agent, cannot be included in the assessable value for charging the service tax.

The tribunal while presiding over the second issue pertaining to service tax demand remanded the matter back to the adjudicating so as to clear the factual background.