No Service Tax on Reimbursements Received as Pure Agent: CESTAT [Read Order]

M/s. Seamax Shipping India Pvt. Ltd., the appellants are engaged in providing clearing and forwarding agency service. On scrutiny of the financial records of the appellants for the period 2007 – 08 to 2010 – 11, Revenue noticed that they have not included certain incomes relating to service charges receipts, drawback commission, exchange rate fluctuation income and brokerage in the value of their taxable service; an investigation was initiated and statements of different persons were recorded.

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On conclusion of the investigation, a Show Cause Notice dated 16.10.2012 was issued to the appellants demanding service tax of Rs.96,62,307/- along with interest and penalties. The Show Cause Notice was adjudicated by the learned Commissioner confirming the service tax of Rs.83,70,488/- under the head ‘Clearing and Forwarding Agency Service’, ‘Business Auxiliary Service’, ‘Goods Transport Agency Service’; dropping service tax demand of Rs.12,91,819/- on account of Commission and Rebate. Hence this appeal.

Shri G. Natarajan, Counsel for the appellant submitted that the demand was originally raised on 11 heads on reimbursements of various expenses claimed by the appellant from the service recipient; the demand in respect of 9 heads have been dropped on the ground that the conditions prescribed under Rule 5 of Service Tax (Determination of Value) Rules, 2000 have not been satisfied.

However, the demand in respect of five claims and reimbursements of transport / weighment charges have been confirmed on the ground that the amounts spent on these heads and the amount recovered from the customers are not equal and in some cases the expenditure is more than the income. Counsel for the appellant relies on the judgment of the Supreme Court in the case of Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. – 2018 holding that Rule 5 of the Service Tax (Determination of Value) Rules, 2000 as being ultra vires, section 67 of the Finance Act, 1994.

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Counsel submitted further that in respect of brokerage income and drawback commission, the amount was received by the appellant from their exporter-customers, for processing and follow up of their drawback claims. The said service cannot fall under BAS and at best it may fall under any of the support services. He takes us through the definitions of Business Auxiliary Service and Business Support Services.

With respect to demand on brokerage, counsel for the appellant submitted that this is an incentive given by the shipping lines for the packing of cargo with their respective shipping lines. This is in fact a reduction of freight charges payable to the shipping lines by the appellants on behalf of their clients. It cannot be considered as a Business Auxiliary Service provided by the appellant.

In respect of demand raised under GTA service, counsel submitted that the appellant as part of their clearing and forwarding operations also arranged to transport the goods from the customers’ place to the port and vice versa and paid freight to the transporter; they claimed the reimbursements of such freight paid from the customers; and the service tax on the reimbursements by the customers have been demanded wrongly by the Revenue; it is an admitted fact that thee are reimbursements received by the appellant as their pure agent and not towards any services.

The appellant has not received any GTA service but has only paid to the transporters and was reimbursed by the customers. The GTA under reverse charge would be leviable on the customers who availed the services of the goods transport agency on reverse charge mechanism. However, during the relevant period, Rule 5 of Service Tax (Determination of Value) Rules, 2000 have been held to be ultra vires by the Supreme Court and therefore the demand cannot survive.

Shri N. Satyanarayanan, Authorized Representative for the Revenue reiterated the findings of the impugned order and submitted that the Commissioner has given elaborate reasoning as to why it was held that condition prescribed under Rule 5 of the said Rules have not been satisfied in this case.

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A two member bench of Shri P. Dinesha, Member (Judicial) and Shri M. Anjani Kumar, Member (Technical) held that the reimbursements received by the appellant from their customers is not in respect of any service rendered by them but it is the reimbursements given to them as a pure agent and therefore such reimbursements are not taxable service as by no way of imagination they can be linked to any conservation for such service rendered.

The tribunal set aside the impugned order and allowed the appeal.

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