Reimbursement for Miscellaneous Activities Received on Actual Basis: CESTAT upholds order to set aside Demand of Service Tax [Read Order]

The Kolkata bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) upheld the order to set aside the demand of service tax as the reimbursement for miscellaneous activities received on an actual basis.

The Respondent M/s Ganga Carriers Pvt. Ltd was appointed as Clearing and Forwarding Agents by M/s Everest Industries Ltd and some other clients. An investigation was initiated against them by the Officers of DGCEI Jamshedpur and as a result, two Show Cause Notices dated 19.10.2005 and 21.12.2006 were issued to the Respondent demanding Service Tax of Rs. 1,57,68,416/-in total, including Education Cess.

 It was alleged that the Respondent has paid Service Tax only on the remuneration/ commission received by them and not paid service tax on the reimbursements received from various clients.  The Adjudicating Authority has confirmed the total demand of Service Tax amounting to Rs.1,57,68,416/- along with interest and penalty vide OIO dated 30/11/2007.

The Respondent preferred an appeal before the CESTAT, Kolkata which vide its orders dated 26/03/2012 and 17/07/2014 remanded the case back to the Adjudicating Authority to decide the matter afresh taking into consideration the guidelines prescribed in respect of reimbursement by the Tribunal in the case of M/s Sri Bhagavathy Traders Vs CCE, Cochin, reported in 2011-24-STR 290. On Denovo adjudication, the Adjudicating Authority dropped the proceedings vide Order in-Original dated 11.08. 2015.

The Appellant revenue submitted that C&F Agent is not a piecemeal service, rather it is a composite activity undertaken on behalf of the Principal and therefore it cannot be further divided to segregate each of the steps of service from the other steps.

Further stated that the Respondent never disclosed before the department about the receipt of amounts in the form of reimbursements from the clients. Accordingly, they contended that the extended period has been rightly invoked in the Notices dated 19.10.2005 and 21.12.2006.

On the Board Circular F. No. B.43/7/97-TRU dated 11th July 1997 it was clarified that the value of taxable service rendered by a C&F Agent has been defined as the gross amount charged by such agents from the client for the services of clearing and forwarding operations in any manner. However, under service Tax rules it has been provided that the value of taxable service about services rendered by clearing and forwarding agents to a client shall deemed to be the gross amount of remuneration or commission, by whatever name called,  paid to such agent by the client engaging such agent.

The Respondent submitted that they have been paying Service tax regularly as required under Rule 6 on the remuneration/service charges they had been receiving from their principals. The SCN alleged that charges towards rent, postage, courier, stationery, telephone and so on collected by the respondent from their principals to meet the actual expenses incurred in connection with clearing and forwarding of goods were to be added to the taxable value of the service. 

The Respondent submitted that Section 67 of the Finance Act, 1994 defines the valuation of taxable services for charging Service Tax according to which, the value shall be the gross amount charged by the service provider for such service provided.

A two-member bench comprising Mr Ashok Jindal, Member (Judicial) and Mr K.Anpazhakan observed that Service Tax (Determination of Value) Rules, 2006, has brought in the concept of ‘Pure Agent’ to address the taxability issues of reimbursements. As per the said Rules, expenditure incurred as a ‘Pure Agent’ was excluded from the assessable value. In the present matter under dispute, a perusal of the agreements entered with the different principals reveals that there were specific amounts for remuneration to be charged as a C&F Agent. 

It was found that the Respondent has recovered precisely the same amount from the recipient that has been paid on their behalf by producing documentary evidence regarding such expenditure. Thus, it is established that the Respondent has acted as a 'Pure Agent' while incurring such expenditure. 

While upholding the order, the CESTAT held that “all the 'reimbursement expenses' have been included in the consideration with effect from 14/05/2015. Hence while calculating service tax, the service provider has to include all the expenses whatever he incurred for rendering service, w.e.f.14.04.2015 only and not before that period.”

To Read the full text of the Order CLICK HERE

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