The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal(CESTAT) has held that reimbursable expenses incurred by Customs House Agent (CHA) on behalf of the service recipient are not includible in the gross value of CHA service. The CESTAT set aside the service tax demand on reimbursable expenses.
The issue involved in the present case is whether the appellant, Shakti Enterprise being CHA is liable to pay Service tax on various expenses incurred on behalf of their clients. The department alleged that all these expenses incurred during providing CHA service, therefore are includible in the gross value of CHA services provided by the appellant.
Shri ND George, Counsel appearing on behalf of the appellant submitted that the appellant is paying service tax correctly on the service charge of their service i.e. CHA service. All the other charges towards actual expenses have been borne by the appellant for and on behalf of their client and the same is recovered as reimbursement as actual charges.
He further submitted that the appellant is a pure agent and providing CHA service under the authorization given by the client therefore, actual expenses incurred for and on behalf of their client as reimbursed and the same is not includible in the gross value of CHA service.
He also submitted that CBIC under its Circular No. 119/13/2009-ST dated 12.12.2009 also clarified this issue wherein it was clarified that other than CHA service charges, other charges incurred and recovered as reimbursement from their client are not includible in the gross value of CHA service.
He further argued that the department has invoked Rule 5 for the inclusion of reimbursable expenses in the value of CHA service charges. The appellant had a bonafide belief that they are liable to pay service tax only on the value of CHA service and not on other reimbursable expenses. The appellant was registered with the Service tax department and discharging service tax on their service charges therefore, there was no suppression of facts hence the demand is hit by limitation also. Shri Ajay Kumar Samota Superintendent (AR) appeared on behalf of the Revenue and reiterated the findings of the impugned order.
The service provider has not acted as a ‘pure agent’ for the service recipient within the meaning provided in Explanation 1 to Rule 5(2) of Valuation Rules. The service provider further does not fulfil the condition detailed in Rule 5 (2) of the Valuation Rules. It is beyond doubt that to exclude expenditures or costs incurred by the service provider, they should have acted as a pure agent and the condition detailed in Rule 5 (2) of the Valuation Rules were required to be followed in principle. Therefore, there is no question of excluding any amount from the total taxable value received by the Service provider from the service recipient on any count.
A two-member bench comprising Mr Ramesh Nair, Member (Judicial) and Mr C L Mahar, Member (Technical) viewed that as per the provisions of Rule 5 of the Service Tax (Determination of Value) Rules, 2006, the reimbursable expenses also need to be included in the value of taxable services rendered.
In view of the Apex Court judgment in the Intercontinental case and the Board circular, the CESTAT held that the reimbursable expenses incurred by the appellant on behalf of the service recipient are not includible. While allowing the appeal, the impugned order was set aside.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
