Reimbursable Expenses Excluded from Service Tax Valuation: CESTAT sets aside Demand in CHA Services Case [Read Order]

The Chennai Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) set aside service tax demands raised on reimbursable expenses collected by a Customs House Agent while providing CHA services. Relying on the Supreme Court ruling in Intercontinental Consultants, the Tribunal held that service tax is leviable only on consideration for services actually rendered. It ruled that expenses recovered on actuals as a pure agent cannot form part of taxable value.

The appellant, Balram Shipping Services, was registered with the service tax department for providing Customs House Agent service (CHA), challenged Order in Appeal No.450/2016 dated 29.07.2016, wherein the appellate authority allowed Revenue's appeal.

The original orders Nos.44 & 45/2012 dated 24.04.2012 were set aside that had dropped proceedings under SCN Nos.336/2009 and 429/2009 for periods 2006-2009, and remanded the matter for verification of the chartered accountant's certificates submitted by the appellant.

The Appellant collected service charges along with various reimbursable charges (harbour/CFS dues, IAAI charges, loading/unloading fees, surveyor fees, freight/steamer agent charges, and insurance charges) from clients and excluded these reimbursable charges from taxable value, claiming they were not leviable to service tax.

The Department stated that under Section 67(1) and Rule 5(1) of the Valuation Rules, 2006, such expenses must be included in taxable value as the appellant did not qualify as a "Pure Agent" under Rule 5(2). Show cause notices were issued for periods 2006-2009 demanding service tax, interest, and penalties.

The Section 67(1) of the Finance Act, 1994 explained that: Valuation of taxable services for charging service tax

“(1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,—

(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;

(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;

(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.”

Further, the adjudicating authority dropped the proceedings, accepting chartered accountant certificates that confirmed the charges were reimbursed on actuals without markup, and relying on a Tribunal precedent on similar issues. The Commissioner (Appeals) set aside this order and remanded the matter for verification of the certificates. The appellant challenged this remand order before the Tribunal.

The Counsel for the Appellant, Radhika Chandrasekhar, argued that the appellant discharged service tax only on consideration received for CHA services, excluding reimbursable charges as these were not consideration for services but expenses reimbursed by clients on actuals. Only service charges for services rendered form part of taxable value; reimbursements were not taxable.

Further, the Counsel relied on Supreme Court's decision in UOI v Intercontinental Consultants and Technocrats Pvt Ltd, 2018 (10) GSTL 401 (SC) which struck down Rule 5(1) of the Service Tax Valuation Rules, 2006 as ultra vires Sections 66 and 67 of the Finance Act, 1994. The issue stands settled in appellant's favour by this Supreme Court judgment and the Tribunal's decision in Sindhu Cargo Services Pvt Ltd v Commissioner of CGST & Service Tax, Chennai North, (2025) 30 Centax 383 (Tri-Mad).

On the other hand, the Counsel for the Respondent, Anandalakshmi Ganeshram, Authorised Representative, reiterated the findings of the impugned order in appeal.

The Tribunal consisted of Judicial Member, Ajayan T.V and Technical Member, M. Ajit Kumar, heard and reviewed the matter.

The Tribunal, after considering the submissions made, held that service tax on reimbursable expenses is settled by the Supreme Court's decision in UOI v Intercontinental Consultants and Technocrats Pvt Ltd, 2018 (10) GSTL 401 (SC), which struck down Rule 5(1) of the Valuation Rules, 2006 as ultra vires Sections 66 and 67 of the Finance Act, 1994.

The Supreme Court ruled that service tax applies only to consideration for services actually rendered, not reimbursable expenses. Section 67 permits taxation only on amounts charged for "such taxable service." Rule 5 exceeded statutory mandate as subordinate legislation cannot go beyond the parent Act. The Legislature's 2015 amendment to Section 67 (effective May 14, 2015) to include reimbursable expenses confirmed this was a substantive, prospective change.

Following this Supreme Court precedent and the Tribunal's decision in Sindhu Cargo Services Pvt Ltd (2025) 30 Centax 383 (Tri-Mad), the Tribunal held the impugned order in appeal cannot sustain.

Thus, the Tribunal allowed the appeals and Order in Appeal No.450/2016 dated 29.07.2016 was set aside with consequential relief. The Order was pronounced in open court on 03.11.2025.